Long-term structural realignment between the United States and China unlikely

Xi and Trump.jpg

It’s no secret that negotiators for both the United States and China seek a deal that would end the so-called trade war and boost both economies. The rest of the world, too, seems to be anxiously waiting for a clear signal on the trajectory of these negotiations and the direction of the broader US-China economic relationship in general.

For President Trump, a deal with China has the potential to boost the US economy in the early stages of the 2020 Presidential Campaign - and voters are much more likely to support his reelect if they feel like there is more money in their pockets. For President Xi, a deal could reverse the damage US tariffs have already done to the Chinese economy. Sounds reasonable, even plausible, as far as it goes, but unfortunately short-sighted.

President Trump correctly has stated repeatedly that he is looking for fairness and reciprocity in any agreement, and beyond that, there are structural problems in the relationship that need to be addressed. Years of lax China policies have led to a regime many argue poses the greatest threat to the United States and other nations around the globe. Vice President Pence framed the broader China concerns quite well in his October 2018 Hudson Institute speech. Those concerns came into stark international focus in the wake of the indictment of Huawei’s Chief Financial Officer for financial fraud, sanctions violations and other charges.

China is looking for something much different. On its face, they are looking for low or no tariffs on all Chinese goods imported to the United States. However, Beijing wants the benefits of a trade deal, without addressing the structural problems that are the cause of the current trade conflict.

In some ways we have today a role reversal when it comes to received wisdom about US and Chinese leaders. We have a Chinese leader seeking to buy time, minimize risk, and avoid reform, and an American leader willing to risk short-term uncertainty in order to achieve long-term structural stability.

Given the clash of differing objectives and intentions, my sense is any near term agreement at best will be a short term investment in what is to be a much longer process. In other words, if an agreement emerges at all, it will mark the beginning (not the end) of real negotiations. Whether by coincidence or by design, the US has essentially adopted a Chinese approach to negotiations. We shall see how they like it and whether it works.