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US-China trade truce

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By Andrew Hammond

U.S. President Donald Trump lauded "the incredible deal…one of the largest ever made" with Xi Jinping at the recent G20 in Argentina. Yet questions remain about whether the agreement will be any more than a temporary truce, or the beginnings of the bigger U.S.-China grand bargain Trump wants.

As ever from Trump, the rhetoric surrounding the meeting was fuelled with hyperbole. The U.S. president described it as an "amazing…meeting with unlimited possibilities".

Given the massive stakes in play, both sides stepping back from the precipice of further sanctions in January is a welcome development. The trade tensions have the potential to severely disrupt what is probably the world's most important economic and political bilateral relationship which could still lead to a full blown U.S.-China trade war.

In practice, what Trump has agreed to is holding off for 90 days from the planned increase from 10 percent to 25 percent in U.S. tariffs on some $200 billion worth of goods. In exchange, Xi offered a pledge to "purchase a not yet agreed upon, but very substantial" amount of U.S. goods.

Yet, despite Trump's optimism at the weekend about future relations, it is by no means certain that the trade and wider relationship is now on a less combative path in 2019. Trump himself said Tuesday that if the truce did not work out "remember I am a Tariff Man. When people or countries come to raid the great wealth of our Nation, I want them to pay for the privilege of doing so."

Trump's latest outburst comes after U.S.-Vice President Mike Pence gave a very hard-hitting set piece speech against China in October. Moreover, Trump signed legislation over the summer requiring the U.S. commerce secretary to deliver a "Report on Chinese Investment" in the United States to Congress and the Committee on Foreign Investment in the United States every two years up to 2026.

The bill singles out Chinese investment as a security threat, and zeros in on Beijing's "Made in China 2025" plan. So this legislation, alone, could set the seeds for future strife and the Chinese Defense Ministry asserts that it "abounds in Cold War thinking, exaggerates the level of the China-U.S. confrontation...undermines the atmosphere of development of China-U.S. military ties, and damages China-U.S. mutual trust and cooperation."

This underlines that, underneath this apparent welcome success of U.S. and Chinese diplomacy at the weekend, bilateral ties overall remain mixed, and it is unclear how much personal chemistry Trump and Xi have in practice, despite the praise that the former often gives the latter. This is relevant as, while economic and security fundamentals will largely determine the course of ties in coming years, personal warmth between the two leaders could also be key.

During the Obama presidency, the fact that bilateral relations remained generally cordial reflected, in significant part, the personal commitment of Barack Obama and Xi to stability. Both recognized the super-priority of the relationship, and Washington pursued a strategy that promoted cooperation on softer issues like climate change, while seeking constructive engagement on vexed, harder issues such as South China Sea tensions.

Meanwhile, Xi outlined his desire to fundamentally redevelop a new type of great power relationship with the United States to avoid the clashing great power patterns of the past. This is an audacious goal, which still lacks any detailed definition, and it is not certain how long the pledge will remain in place if Trump returns again to his previous bellicosity toward China.

For a while Trump is very often warm in his rhetoric toward Xi, including in recent days, he and others in his administration genuinely believes China is a major threat to the United States. This is not only true on the economic front, but also the security domain too: much of the U.S. president's anti-Beijing rhetoric appears to be based on a conviction that China represents the primary threat to U.S. interests globally.

Outside of North Korea, where Beijing and Washington cooperated to positive effect during some of 2018, a string of security issues still cloud the bilateral agenda, including the South China Sea. This topic frequently brings frustrations for both sides and last year even the comparatively moderate-mannered former U.S. secretary of state Rex Tillerson said Beijing should "not be allowed access" to its new, artificial islands there, a sensitive comment given China's animus toward U.S. sea and air maneuvers near its borders.

Yet, it is economic disputes that are currently at the fore of the bilateral relationship. Trump has often asserted that "China…has been very tough on our country…We probably lost last year $500 billion in trade to China. Think of it: 500 billion."

And it is this narrative that Trump may yet return to in 2019, if not before, if he judges it in his political and economic interests with his 2020 re-election campaign fast approaching. As well as his concerns about U.S. trade deficits and purported U.S. job losses that come from this, he has repeatedly called Beijing "grand champions of currency manipulation", asserting the country is keeping its exchange rate artificially low in order to secure an export advantage.

On the face of it, therefore, it appears much too soon to dismiss the prospects that tensions between Beijing and Washington will definitely subside in 2019. Yet such is the mercurial nature of Trump, it remains genuinely unclear when he might potentially seek to up the ante again.

Ultimately, as he moves into the second half of his term in office, he needs to show his U.S. political base a wide range of concessions from China on these issues to seek to fulfill his "America First" agenda. Here he has previously asserted that "everything is under negotiation," and what he ideally favors ― building on the recent diplomacy with Xi over North Korea ― is a wider grand bargain with Beijing extending beyond the economics arena, where one of his key asks is to see the Chinese currency floated, to other security issues too.

If such a deal can be pulled off, it would potentially provide for greater overall stability in the world economy and limit damage to the currently creaking international trade system which risks being undermined further by a major U.S.-China spat. An agreement of this kind could also have a broader positive effect on international relations, helping underpin a renewed basis for bilateral relations under the Trump presidency into the 2020s.


Andrew Hammond (andrewkorea@outlook.com
) is an associate at LSE IDEAS at the London School of Economics.




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