Trump’s Diplomatic Reality Show Hits Summer Re-Run Season

Photo: AFP

This op-ed appears originally appeared on the SCMP website 7/5/19.


Last Sunday, US President Donald Trump crossed the guarded border in Panmunjom, a village in the demilitarised zone between North and South Korea. He smiled and shook hands with North Korean leader Kim Jong-un as photographers rushed to capture the history-making moment. This was, after all, the first time a sitting US president had set foot in reclusive North Korea.

What could have been a breakthrough meeting between the last cold war rivals instead devolved into yet another photo op for the White House family album.

Meanwhile, Trump gains little from giving away personal meetings like candy from a cheap dispenser.

A one-hour-plus Trump-Kim meeting followed without any discernible outcome, other than that the negotiators will get back to negotiating. So we end up where we started, sold on an empty victory as the Donald Trump diplomatic reality show goes into its summer rerun phase.

Under an administration that is obsessed with camera-ready events rather than serious strategy, the country’s credibility around the world continues to decline.

Imagine if this effort had gone into concluding a comprehensive treaty with the North, eliminating the missile and nuclear threat and establishing a durable peace on the Korean peninsula. Then this meeting might have been worth something.

Instead, Trump love-bombed Kim. This flattery may be Trump’s attempt to get the reclusive leader out into the world and impress him with the riches that could be his if he would give up his nukes – except that Kim is not that naive. To believe that Kim would succumb to Trump’s charms and miraculously give up weapons he thinks ensures his country’s survival shows a remarkable lack of sophistication on Trump’s part.

While the White House preoccupies itself with staging publicity stunts, North Korea keeps winning, the longer Kim holds out for a deal. Stringing Washington along is cost-free and gives the young leader larger international exposure and some semblance of overseas influence. Also, perhaps more importantly, it buys him time to continue developing his nuclear arsenal.

Meanwhile, Trump gains little from giving away personal meetings like candy from a cheap dispenser.

The administration’s preference for optics over policy is not limited to North Korea. Meeting Chinese President Xi Jinping at the Group of 20 summit in Osaka, Trump eased national-security restrictions on Chinese tech giant Huawei in exchange for a promise of increased Chinese imports of US goods. China was already buying large quantities of US agricultural products before he imposed tariffs – so yet again, we have an apparent development that just pushed the trade talks back to where they started.

However, Trump’s sudden back-pedalling on Huawei – like his flip-flop on ZTE, another Chinese smartphone maker that had been banned from buying US components after breaking US sanctions against Iran – only adds to other countries’ concern. With Trump, everything is a commodity to be traded.

On Iran, the White House has shown a propensity for haphazard thinking. After repeatedly warning Tehran that shooting down a US drone and attacking ships in the Strait of Hormuz would result in decisive action, Trump suddenly reversed course. He said he was concerned about the loss of life. But it wasn’t a convincing excuse because military commanders could have easily offered other targets or options for retaliation if that was the major issue.

Impulsive and consensus-bending actions are now being emulated among US allies. Japan and South Korea have, in the past, worked in concert on economic and security issues. At the G20 summit in Osaka, both countries adopted a declaration to “realise a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, to keep our markets open”.

Yet, within days, Japan imposed restrictions on hi-tech exports to South Korea. The sudden action appeared to be in retaliation for a top Korean court ruling on Japanese compensation for wartime forced labour, an issue which Japan says it settled under a 1965 treaty.

The world will be worse off if this rot continues. Back in the US, domestic politics is also replacing substance with style and made-for-television flash. According to a Pew survey in June, an overwhelming majority of Americans – 85 per cent – believe that political discourse in the US has become worse, and 55 per cent blame Trump. Huge numbers believe that political debate has become less respectful, fact-based, and substantive.

Leadership has always had an element of stagecraft – grand settings for formal talks, the glare of press corps lights, red carpets. “Politics is show business for ugly people,” as the saying goes. But leaders have to be judged by what they actually accomplish.

So far, global leaders have willingly participated in Washington’s publicity stunts, but as the ties that bind nation to nation slowly unravel, international cooperation will become more difficult. Not only is the world less safe as a result, the preference for symbolic gestures over concrete action also encourages a rise in personality politics.

Even Trump admits in his book Trump: The Art of the Deal: “You can’t con people, at least not for long … if you don’t deliver the goods, people will eventually catch on.” The only question remaining is how much longer this con that has lasted 2½ years can keep going.


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No Deal, No Problem – A Trump-Xi G20 Meeting Is Already a Win

Illustration: Craig Stephens

This op-ed originally appeared in the SCMP on 6/24/19 and has been updated below.

Update: According to news reports (SCMP/Politico) Trump and Xi have tentatively agreed to a trade truce in the run-up to their Sat. 6/29 meeting at the G20 in Osaka, Japan. Preliminary press releases reportedly indicated that the U.S. would not impose new sanctions on an additional $300M in imports from China.

Presidents Donald Trump and Xi Jinping are finally meeting on Saturday at the Osaka G20 Summit. For those hoping that a resolution to trade tensions is near at hand, however, it is best to lower expectations now.

Neither side is itching for a compromise that could be easily interpreted as weak or conciliatory. Quite the opposite. If there was a meter measuring market pain for both countries, it has not yet pinged high enough for either side to change its position. That is what it will take because the tariff feud has turned into a contest of wills over a much broader geopolitical struggle.

Trump is holding fast. He gloated over his tough China stance to an adoring crowd of 20,000 fans during his 2020 Presidential campaign rally in Orlando, Florida. While his understanding of trade complexities can be charitably described as confused, he proudly declared that Americans were not paying for the tariffs, despite all evidence to the contrary.

The best the world can hope for is a pause between the two with neither side looking like they are “giving in.”

This followed not-so-veiled threats that if the meeting didn’t happen Trump would immediately impose additional tariffs on the remaining $300 billion of Chinese imports. He remains convinced that the US has the upper hand and “China will have to make a deal.” These are not the words of a leader convinced he has to compromise, even though he offered conciliatory words about how strong of a leader Xi is and their good personal relationship. 

The Trump administration is already walking back expectations of a major breakthrough. Commerce Secretary Wilbur Ross, speaking to Bloomberg at the Paris Air Show this week said “eventually we will have a deal with China, but I don’t think it will come directly out of the G20. The G20 is 40,000 foot level kind of discussion.” Principles for going forward, he went on to say, would be the best case.

It’s hard to imagine what principled negotiations would look like when there has been so little of it in the past. Sending mixed signals is Trump’s forte, it’s how he keeps everyone guessing, as if that’s some masterstroke of negotiating leverage. It isn’t. An impulsive strategy like this builds mistrust and uncertainty, the opposite conditions for effective negotiations.

Xi also shows no signs of compromise. Economic growth may be slowing, from manufacturing to car sales to exports and foreign direct investment, but the policy pumps are just turning on to push the economy forward again. “Soft” diplomacy has begun to turn hard with academic program cancellations, delayed visa issuances, and anti-US rhetoric on state-controlled media. These are not the signs of a leader ready to compromise either.

More importantly stark differences remain between both sides. The US wants fundamental changes to China’s system of state-owned enterprises. The state sector is one of the few remaining vestiges of party control over the economy and Xi would have to damage his own base to satisfy Trump’s demands. This looks increasingly like a non-negotiable issue.

President Xi, in agreeing to the G20 meeting, said he wants Chinese companies to be treated fairly, an oblique reference to letting the Huawei issue go. Trump has casually suggested the company could be included in a trade deal, but this further muddies the waters of what constitutes a national security threat versus a political punching bag. Congressional backlash to softening his stance would be swift and unforgiving.

Instead, the best the world can hope for is a pause between the two with neither side looking like they are “giving in.” 

The G20 is a perfect venue for these gestures, with its traditionally grand shows of diplomatic pleasantries. If Trump and Xi appear together, shake hands, and smile, consider that a small victory. If a process or roadmap is announced, then at least both sides can go back to their corners while negotiators search for compromises — not a terrible outcome considering the alternatives.

Trade disagreements between the US and China are at risk of becoming symbolic of a great power rivalry, and symbols can easily take on a life of their own if given enough time and energy. A dangerous nationalistic fervor brews in both countries. It doesn’t take much to go from simmer to boil. 

Considering the risks of a breakdown in talks, both sides need to go in clear-minded. At present there is no economic crisis that will pressure Beijing to make concessions. And election-cycle politics in the US will not pressure Trump into a deal. To the contrary, his campaign’s talking-points have already been tested using China as an easy target for political gains. 

That expectations for the Osaka meeting need to sink so low speaks to a broader break down in relations rather than the specific trade issues that need to be addressed.

In diplomacy, sometimes a pause is a prelude to a turn around, sometimes it’s just a break to argue another day. In either case, not escalating the feud is a benefit for everyone, even if it’s just a short-term win that both sides can claim as their own.


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No “New Cold War” Between U.S. and China



Illustration: Craig Stephens

People like stretching historical analogies over present-day problems, even when they don’t quite fit. It’s no wonder that the United States’ competition with China in trade and technology has been widely dubbed the “new cold war”, though it bears only a superficial resemblance to that period of ideological conflict.

What the world faces now is much more complicated than that. We’re entering a chaotic period of shifting, unprincipled relationships. It’s not a competition between the “free world” and “authoritarianism” any more but, rather, a world divided against itself, chasing short-term gains as nationalism rises.

Over the last several years, the values and opportunities that China and the US represent to the world have changed at a pace unique in recent history. Most countries have successfully navigated between China and the US, but if relations between the two sour much further, the pressure on other countries to choose sides might be impossible to ignore.

Countries are caught in the middle of a non-ideological battle between economic powerhouses.The US has changed dramatically under President Donald Trump. He has elevated an anti-immigrant, anti-global, anti-free trade agenda, targeting allies and competitors alike. He wields tariffs like a bludgeon over any country he determines to be working against his interests, ranging from Mexico (in the name of stemming the flow of illegal immigrants) to potentially Australia (on who knows what whim).

And he has trampled on cherished democratic norms and the legitimacy of the constitution, Congress, and courts. Gone are the days of the US as a beacon of human rights and open markets, and as the land of seemingly unending opportunity.

Other countries are noting that the world of strict alliances and the spheres of influence are changing. Consider the historically close ties between the US and the Philippines, which includes the Mutual Defence Treaty of 1951. Manila now seeks to re-evaluate the agreement that requires each side to go to the other’s aid in case of an attack. The Philippines conducts military drills with the US, but also takes part in Chinese-led naval exercises – even though Beijing currently controls territory in the South China Sea that Manila sees as its own.

Clearly, the Philippines feels compelled to sit on the fence, as do many other countries. Singapore drills with both the US and Chinese navies. Japan, a strong military ally of the US, has signed a cross-border investment agreement with China. Germany refuses to rule out the use of Huawei mobile-internet equipment despite Washington’s threat to cut off intelligence sharing with Berlin if it does not drop the Chinese vendor.

China is also changing rapidly. After decades of stellar growth, its economy is slowing and its export growth to countries around the world can’t go on forever. Beyond growth, politics is increasingly influencing business.

Source: CNBC

In the past, as long as countries avoided direct criticism of the Chinese government, they could keep access to the lucrative mainland market. Now, companies are increasingly targeted for purely political purposes and a blacklist is reportedly being created that might include US tech companies and Japanese firms that will no longer work with Huawei. Earlier this year, an unofficial Chinese ban on Australian thermal coal imports looked suspiciously like payback for Canberra’s decision to block Huawei, too.

China’s global campaign to win friends and influence neighbours worked well. Beijing spoke of biding its time and rising peacefully, and most observers didn’t bother to consider what China was biding its time for. However, its aggressive campaign to militarise the entire South China Sea has since shattered illusions of peaceful coexistence under international law.

A military build-up sized more for a global role has also became evident with China’s development of a third aircraft carrier and an army of state-backed hackers targeting foreign countries and companies at an alarming rate. Port agreements around the world have also raised the alarm about China’s naval expansion along with its global economic interests. To even the casual observer, a defensive posture is evolving into an offensive capability.

And here lies the danger of rushing into war rhetoric – trade war, cold war or otherwise. For the lens through which we view the world also limits what we see.

In war, one side wins, the other loses. In the complex world of international relations, however, that’s often not the case. The more that the antagonistic aspects of the US-China relationship get hyped, the less room there is to negotiate. People may then erroneously believe that conflict is inevitable.

At this moment in history, neither the US nor China represents an ideal to the rest of the world. Both want the world to conform to their specific versions of economic success. Both are challenging what it means to be allied with other nations. Tight configurations have loosened.

If the global order fractures along fault lines, there won’t be two sides like in the cold war, but many chaotic fragments that will be hard to make whole again.


This op-ed originally appeared on the SCMP website.

China Share of U.S. Imports Decline as Mexico, India, and SE Asia Gain

This op-ed originally appeared in the SCMP, May 20, 2019

China’s position as top US trade partner and largest source of American imports may be over as other economies gain from Beijing’s tariff troubles. Mexico and countries across Southeast Asia have already seen their percentage of US imports rise as China’s declines. This change will only accelerate as the trade war continues, and as of now there’s little reason to think it won’t go on for an extended period.

If US President Donald Trump raises tariffs on all Chinese imports, as he’s threatened to do, bilateral trade may never be the same.Shifting trends are already showing up in the trade data. While China continues to be a top source of US imports, sales in the first quarter of 2019 have dropped 14 per cent to US$106 billion from US$123 billion during the same three-month period last year, according to US Census data.

This is despite the US dollar strengthening against the Chinese yuan, making Chinese imports even cheaper. Mexico, the No 2 source of US imports, had the largest quarterly gains. Over the past decade, Chinese manufacturers have also lost market share in four out of its seven top US sectors, including computers, apparel, toys and furniture. Mexico’s share of the lucrative US computer segment grew to 32 per cent in 2018, from only 21 per cent in 2010. The recently negotiated US-Mexico-Canada trade agreement gives Mexican firms an even stronger advantage after Trump raised tariffs on Chinese imports.

Countries throughout Southeast Asia have also increased their market share in other top China categories. Vietnam has tripled its sales of apparel and textiles (non-wool or cotton) to nearly US$7 billion from US$2.25 billion in 2010. Taiwan, the Philippines, Thailand and Vietnam are also gaining on Chinese firms’ sales of computer accessories.

Chinese firms still account for half of all US imports of computer accessories, but other competitors are picking up significant market share. Collectively Taiwan, the Philippines, Thailand, Vietnam, and Mexico captured 28 per cent of this US import sector, up from 15 per cent at the beginning of the decade. These increases occurred despite Trump abandoning the Trans-Pacific Partnership, an agreement meant to eliminate tariffs among participating countries, which would have accelerated imports from Vietnam even faster.

India, too, is uniquely positioned to reap the benefits of shifting supply chains and its growing domestic market. According to the International Monetary Fund, India is already the fastest-growing major economy in the world and is expected to hit nearly 8 per cent in 2024, up from 7.1 per cent in 2018.

Construction has begun on the city of Amaravati, the new capital of the state of Andhra Pradesh. Photo: AFP

Construction on the city of Amaravati, the new capital of Andhra Pradesh, India. Photo: AFP

Gems have dominated exports to the US, but several Indian states, including Andhra Pradesh, in southeast India, are now home to mobile phone manufacturing plants. India’s cellphone exports to the US remain extremely small at present, but increases in capacity, rising skill levels and comparably lower wage costs that supply the booming domestic market may support export-oriented growth in the future.

India’s infrastructure projects are also expanding, providing US companies facing difficulties in China with new opportunities. Several cities are being built from the ground up, including Amaravati, the recently established capital of Andhra Pradesh. These projects feature green architecture, smart city technology, alternative energy and large-scale construction of residential and commercial buildings.

The World Economic Forum estimates that the automotive and electronics industries in the state alone could present a US$5 billion opportunity.The capital is one of several new developments in the world’s second most populous country and is emblematic of India’s economic rise as China’s own infrastructure spending comes under pressure. That’s good news for US construction equipment makers that have been caught up in China’s latest US$60 billion of retaliatory tariffs.

Difficulties, of course, litter the road to India becoming a global economic powerhouse. Fractious domestic politics, something single-party China has largely avoided, hobbled India’s potential for decades. Ports, road, rail and power currently lag more developed economies in the region. And the Trump administration has targeted India’s excessive tariffs on many US goods, opening up a possible new front in what is becoming his global war on trade.

Support for economic reform is being fostered by the US business community in India. In marked contrast, the business community in China, a long-time buffer to Washington trade hawks, have begun to sour on Beijing’s promises of change.The American Chamber of Commerce in China noted in its 2019 report that for the first time US business sentiment has turned from “cautiously optimistic” to “cautiously pessimistic”. That’s a sea change from years of rosy-viewed survey results.

Even for China’s industries of the future, carving out a sustainable portion of US imports will be difficult

For years they avoided confrontation over policies favouring Chinese domestic companies and forced technology transfer. They accepted short-term losses with the hopes of even greater profits in the future, all while dissuading the US government from more forcefully confronting China. Some now privately support Trump’s efforts to forge a more level playing field, though opposition to tariffs as the tool remains.

Domestic changes to China’s economy also make reclaiming lost market share among US imports increasingly difficult. Central planners in Beijing readily accepted that higherdomestic wages would force low-end manufacturing out of the country. Those jobs left and won’t be returning, much as they did for Japan, South Korea and Taiwan, which no longer make the vast majority of plastic toys and clothing for export.

Employees work on the production line of clothes for export at a factory in Xiayi county in China’s central Henan province in August 2018. Photo: AFP

Employees work on the production line of clothes for export at a factory in Xiayi county in China’s central Henan province in August 2018. Photo: AFP

Even for China’s industries of the future, carving out a sustainable portion of US imports will be difficult. Distrust over expansive intellectual property theft will remain a concern over Chinese hi-tech products like networking equipment, artificial intelligence and biotechnology, the principal areas targeted for future growth.

What the tariff fight now represents is a fundamental shift in the trading relationship. China’s pain is a gain for other countries eager to fill the import gap. This shift may turn into a structural change that will be extremely difficult to reverse. As threats rise from both sides of the Pacific, it may already be too late.

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China’s “Maritime Militia” Raising Stakes for South China Sea Clash

This op-ed originally appeared in the SCMP, May 10, 2019

For years China has avoided direct military-to-military clashes in the South China Sea through the use of fishing vessels backed by the Chinese Coast Guard to enforce its territorial claims. This “maritime militia” strategy may have exhausted its effectiveness now that the U.S. considers these irregular forces to be under the command of the People’s Liberation Army and Navy (PLAN). 

Photo:AP

U.S.-China military dialogues need to increase to match this rising risk of small-scale skirmishes leading to broader armed conflict. Prospects for dialogue, however are dimming as tensions across a range of bilateral issues show no signs of easing.

It was no trivial distinction when, as has been recently made public, U.S. Admiral John Richardson told Chinese Vice Admiral Shen Jinlong in January, 2019, that militia and Navy would be treated the same.

A larger-scale conflict almost occurred as recently as December, 2018, when China sent 100 maritime militia ships to contest the Philippine-occupied Thitu reef located between the island of Palawan and Vietnam. By April, 2019 the number had grown to over 200 ships. Under the new calculus if the Philippine military were attacked by any of these vessels, the treaty-bound U.S. would be obligated to strike back. U.S. Secretary of State Mike Pompeo reassured Philippine President Duterte of this commitment.

Though small in size, unarmed fishing boats, and armed Coast Guard vessels routinely approach ships in the region and ignore warnings to keep their distance. Any one of these could pose a serious threat as the 2000 bombing of the USS Cole, which resulted in the death of 17 sailors and the injury of 39, clearly illustrated. 

Without stronger and more regular contact, the threat of even simple harassment activities that have been tolerated in the past may quickly turn to armed conflict.

This change in military operational protocol comes at a time of increasingly tense relations between the U.S. and China as political forces in both countries test the strength of the status quo. U.S. President Trump’s hardline National Security Adviser John Bolton appears ascendant in the administration’s often haphazard foreign policymaking process, often leading public messaging from the White House. He’s taken aggressive stances against Venezuela, Iran, and North Korea with an excessively bellicose approach to international affairs. 

Recent racist comments from State Policy Planning Director Kiron Skinner certainly don’t help bilateral relations either. In a recent Washington speech at a security event sponsored by the centrist New America think tank, she stated that the challenge posed by China is one of a different ethnicity and civilization and a “non-caucasian” great power competitor. 

With this type of xenophobic theorizing posturing as serious policy, more contact and strong lines of communication between the U.S. and China are more important than ever.

Chinese aggression is also on the rise as naval forces have continued to strengthen. A “near miss” occurred as recently as September, 2018 when a Chinese warship deliberately came within 45 yards of the U.S. warship Decatur, forcing the ship to alter course and avoid a serious collision.

Mediating these conflicts used to be the domain of military-to-military contacts at the highest levels of government. Formal dialogues were regularly held under both Republican and Democratic administrations.  The peaceful resolution of a 2001 mid-air collision between a Chinese jet and a U.S. P-3 surveillance plane, which resulted in the death of a Chinese pilot and the emergency landing of the U.S. crew on Hainan, provides ample evidence of the value of continued communication.

Without stronger and more regular contact, the threat of even simple harassment activities that have been tolerated in the past may quickly turn to armed conflict. As history shows, what starts out small and contained can quickly escalate in ways neither country can easily control. 

Facts at sea are not going to change anytime soon. The U.S., as well as other countries, will continue Freedom of Navigation Operations in the South China Sea in areas globally recognized as international waters. 

Image: Central Intelligence Agency – Asia Maps — Perry-Castañeda Map Collection: South China Sea (Islands) 1988

China is strengthening its artificial islands and their naval harbors, airstrips, and radar installations even though Xi Jinping specifically said he would not militarize the South China Sea back in 2015. 

International and regional responses to these provocations have been exceptionally muted.

Despite a 2016 ruling by a UN tribunal, which declared these installations illegitimate, China has continued to build, occupy, and arm its South China Sea outposts. The UN Convention on the Law of the Sea, to which China is a signatory, makes clear that artificially constructed islands cannot be used as justification for territorial claims. 

The ASEAN Regional Forum (ARF), comprised of 27 nations, has been unable to address concerns over China’s conduct in the South China Sea. An ARF member, China routinely blocks attempts to address these issues.

Which leaves bilateral relations as the main driver of discourse. 

As China’s ambitions expand economically and politically around the globe, its military reach will inevitably grow as well. The build-up, including several aircraft carriers and plans for several more, as well as advanced submarines speak to ambitions that go far beyond China’s coast. 

Without an effective and regular mechanism for two of the world’s largest military powers to address their issues in a peaceful manner, the greater the risk of conflict. Neither country should let this situation devolve further. There’s already too much at stake in a relationship that grows more tense with time.

How the U.S. Still Loses with a China Trade Deal

This op-ed originally appeared in the SCMP as “What the US will lose in a trade agreement with China,” SCMP 4/10/19

As the US and China get closer to a possible trade deal, the World Trade Organisation is set to lose its principal role as an arbiter of disputes. That has significant consequences for global trade, and underlined the re-emergence of bilateral agreements that once hindered global trade and development for decades. 

Illustration: Craig Stephens via SCMP

It’s no surprise that US President Donald Trump’s go-it-alone strategy to upend the status quo runs straight through Geneva. As a presidential candidate, he ran on rebellion. Once in office, he wasted no time reversing US participation in a variety of multilateral agreements.

He withdrew from the Trans Pacific Partnership (TPP), which the US had taken a leadership role in negotiating, and offered nothing to replace it. He imposed tariffs on much of the industrialised world, including allies Japan and the European Union, rather than bringing these disputes to the WTO. He also refused to nominate judges to the vitally important WTO Appellate Body, which inhibits the organisation from adjudicating cases.

His base probably didn’t care about these intricacies of international trade. Their economic anxieties could be assuaged, at least temporarily, by blaming foreigners in faraway places for taking their jobs.

This vision of world trade, fought as a zero-sum competition, is both troubling and naive.

In ordinary times, a dispute over market access or unfair trading practices would work its way through the international legal system. As litigants know, this can be a lengthy process. Even if the claims against a country turn out to be true, the appeals process can drag on while companies remain disadvantaged. Eventual penalties or other remedies may never fully compensate them for losses while other barriers to trade crop up in the meantime.

Instead, Trump unilaterally raised tariffs until China was compelled to negotiate directly with the US. If talks succeed, they will have made much swifter progress than a WTO case. The agreement is even reported to have an enforcement mechanism, whereby China’s adherence to its commitments will be judged under threat of reimposing tariffs. This way, the US retains direct leverage whenever the administration believes there’s been a breach of the agreement.

This all sounds perfectly reasonable – leverage the massive size of the US economy with its main trading partners to secure the best possible deal, all within a relatively short time frame. The world, it turns out, isn’t so simplistic.

A major point of contention for US negotiators is the trade deficit with China. Their solution reportedly includes Chinese government purchases of more US goods, a decidedly non-free-market solution. This fix can be easily reversed by the Chinese government in the future or delayed for any number of reasons – the domestic market may not be able to absorb those purchases, US suppliers may not be able to keep up with the demand, there may disputes over the prices set and the market distorting effects of “forced” purchasing.

Beijing is also no stranger to restricting purchases of imports for political purposes. Norwegian salmon imports were effectively barred from China for several years because Beijing disagreed with the Nobel Peace Prize award for jailed political dissident Liu Xiaobo. Restrictions and other non-tariff barriers to trade were also imposed on the Philippines for its territorial claims in the South China Sea.

Whatever the Trump administration negotiates with China will not be a durable solution, but rather a short-term political fix aimed at shoring up votes for the 2020 presidential election. Joining with similarly aggrieved WTO members to confront China could have created stronger, more lasting institutional-level change.

The negative impacts of this unilateralism are already being felt both domestically and abroad. US companies are losing out to their Canadian and Australian competitors in the lucrative Japanese market after the US withdrew from the TPP. Other countries such as Italy are turning to China’s “Belt and Road Initiative” instead of more traditional development lending institutions like the World Bank, with its extensive oversight mechanisms. That puts further strain on the legitimacy of the international system.

And that’s the point of Trump administration policies that promote a world where economic might makes right.

A fundamental principle of creating global rules of the road since 1947 was to make trade a win-win endeavour. Countries grew together as the overall size of their economies increased, in part due to the benefits of exports, which created new jobs. A rise in imports also increased competition and brought down prices. The current US administration downplays all of these advantages and instead focuses on the negatives of trade, purveying often false and misleading anecdotes of the damage open economies have on US workers.

Without doubt, China has been gaming the system for decades, alternately declaring itself a developing country that needs protection and a global economic powerhouse that deserves the respect of the world. It can’t be both. Entrance into the WTO gave China privileges as well as responsibilities.

As long as China’s market continued to grow, many advanced economies chose to ignore the heavily-tilted playing field. Only now when growth is slowing, the political environment is hardening and the government is actively supporting domestic companies, have the US, Europe and others decided to take action.

Trump’s tariffs have certainly been effective at getting China to the table. They have also been the wrong tool for the right problem. In the end, they will lead to short-term, ill-conceived solutions for temporary gains. Other countries will have to resort to similar bilateral negotiations as the WTO becomes weaker. That’s a terrible precedent to set. The world’s problems are becoming increasingly complex, requiring more cooperation, not less.

If this trend isn’t reversed and soon, there may be far more at stake than just the sale of soybeans and steel. US businesses, workers and consumers will have to live with the consequences long after Trump leaves the White House.


White House Eagerness for a Deal Gives North Korea the Upper Hand


IN A MINUTE | Trump Loses Edge with North Korea

Agreeing to meet without deal gives Kim the advantage


Trump claimed in last weeks’s State of the Union address that if it weren’t for him, the U.S. would be at war right now with North Korea. His self-praise for merely engaging the North telegraphed an eagerness for a deal that will be hard to justify should talks not deliver full and irreversible North Korean denuclearization.

Many now argue that North Korea will never give up their weapons and the U.S. should just accept that and move on, but the stakes are high for U.S. allies South Korea and Japan, the most susceptible to a North Korean provocation. If North Korea keeps its nuclear capability, Japan, a U.S. treaty ally, will certainly move to counter that threat, triggering a regional arms race.

There’s been precious little indication that Kim is willing to give up anything for another meeting with the U.S. President, a completely predictable outcome when Trump showed so much eagerness to meet in Singapore without a major breakthrough in talks.

A presidential meeting should only come after an agreement has been reached, not the other way around.

During the lapse in diplomacy since last summer’s Singapore summit, North Korea has been expanding its weapons program, not decreasing it. Recent reports and commercial satellite imagery show that the DPRK not only continued to build missiles, but there have far more weapon sites than previously disclosed. 

While North Korea has not overtly tested a missile or engine system since talks began, even the most novice global affairs observer knows delays are not concessions. Kim can fire up a test whenever and wherever he wants. Blowing up wooden sheds and exploding a mountain entrance were, at best, window dressing.

Trump has been far more adept in his trade negotiations with China and refused to meet with Xi Jinping until more details are ironed out. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are headed to China soon.

By refusing to say he’ll meet with Xi until he finds out what happens in the latest round of negotiations he maintains his advantage. A presidential meeting should only come after an agreement has been reached, not the other way around.

Which begs the question, why did Trump commit to meeting Kim before his Special Envoy, Stephen Biegun, finished negotiating any of the numerous and contentious details? After Biegun returned from Pyongyang Trump officially announced his Feb. 27-28 visit to Hanoi, but preparations were already underway for that visit. One can only surmise that Kim understood he had the advantage.

Up for grabs are a litany of economic, political, and military gives including the minimal lifting of some U.S. sanctions, a declaration to formally end the Korea conflict, establishing an interest section or Embassy in Pyongyang, and at the extreme, a reduction in U.S. troops and/or weapons systems on the peninsula.

Additionally Trump has already said he wants a Nobel Peace Prize for his efforts, but his vanity should not drive what may amount to a bad deal.

For any of these U.S. concessions, Trump must insist on full, verifiable denuclearization. Otherwise the bait-and-switch game will just go on while North Korea continues to build its arsenal. Transparency has always been the problem, and so far Kim has shown no more propensity to open his reclusive nation than his father or grandfather before him.

That may change if Kim is more interested in massive personal wealth and global recognition that followed Chinese and Vietnamese reform and opening. If so, Trump must press hard on eliminating the North’s ability to make and weaponize fissile material.

The worst thing that could happen in a real estate deal gone bad is bankruptcy. But an impulsive approach to high-stakes diplomacy with North Korea could mean risking regional and U.S. national security.


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Conflicting Signals: USTR Ups Pressure on China and Treasury Talks Lifting Tariffs

Messaging is everything in international diplomacy, especially around high-level negotiations. After the latest round of U.S.-China trade talks in Beijing, all signs pointed to a successful outcome. An extra day was added beyond the planned two days of talks. Vice Premier Liu He made a short appearance at the lower-lower-level gathering of deputies. The U.S. Deputy Agriculture Secretary had glowing words after the meeting (though curiously no one from USTR spoke during the coveted press briefing.) Trump even tweeted shortly afterwards that the talks had gone very well.

And then the messaging changed, at least from USTR. 

Lighthizer said last week, according to Sen. Grassley who had met with him Friday, that he hadn’t seen the structural changes he was looking for from China. That’s a major sticking point for the White House and something Trump has repeatedly said must be addressed to avoid raising tariffs from 10% to 25% on Chinese goods.

It is an odd complaint since China would likely only agree to the far more difficult issues face-to-face at Cabinet-level negotiations with either USTR Lighthizer or President Trump. The Beijing meeting was a the Deputy level, a.k.a. not the decision makers.

Lighthizer also announced that if talks don’t work out, U.S. companies could apply for exclusions to the 25% tariffs on $200 billion of imports from China that are set to take affect in March.

That’s a weak nod to the U.S. business community who were directly affected by the 10% tariffs and are likely lobbying hard for a resolution to the trade impasse. The promise of exclusions provide cold comfort since the aim of the next round of tariffs is to put even more pressure on China. Any exclusions would weaken that influence. Approvals would likely be slow-rolled by the administration. 

USTR now appears to be trying to get out in front and push their hardline agenda ahead of the Jan. 30-31 talks. Sen. Grassley commented in a briefing to the press that since China’s economy is ailing there’s a chance to get more progress on these harder issues, which include IP protection, forced tech transfer, and stealing trade secrets.

These issues aren’t going away. The Department of Justice is now looking into whether Huawei stole robotic technology from T-Mobile.

To further complicate the administration’s signaling, Treasury Secretary Mnuchin has been discussing lifting tariffs as an incentive for China to make an equally bold move, though it’s unclear what that could be considering the depth of structural changes needed to satisfy U.S. concerns.

Since China isn’t going to agree to the U.S. list of over one hundred issues raised, and Trump isn’t going to accept some token purchases of U.S. goods and nothing else, some kind of compromise is necessary. What Grassley and other White House hardliners may not fully accept is that Trump’s approval ratings are plummeting, major U.S. companies are feeling the effects of the tariffs, and Trump himself may be itching for a settlement.

Compromise isn’t really in Trump’s winner-take-all approach and his impulsiveness can lead to unexpected outcomes (e.g. the Wall shutdown). The U.S. and China have been locked in a mutually reinforcing death spiral of tariff-raising for the past year and time is on no one’s side here.

USTR should certainly push for everything they can get. If cooler heads prevail, some sort of short-term relief with continued tariffs on some Chinese goods, and a plan to tackle the harder issues over time is the most likely outcome.

Both sides might not get exactly what they what, but it’s certainly better than the global economic carnage of a prolonged trade war and Trump really looks like he could use a win right now.


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Deal or No Deal in U.S.-China Trade Talks

U.S. negotiators are heading back after an extended trade negotiation with their Chinese counterparts in Beijing. While there’s been no formal agreement yet, both sides are expected to make public announcements on Thursday. If talks had gone badly something would have come out in the official Chinese state-run press by now, so all signs point to some kind of deal. Will it, however solve any of the more difficult challenges in the relationship?

Trump wants to see markets rebound. Chasing the sugar high of a stock jump is hardly a trade policy, and a terrible negotiating position. This essentially gave China added negotiating leverage knowing he is eager to settle. That doesn’t bode well for any substantial movement on the most difficult issues facing U.S. exporters — forced tech transfer, non-tariff barriers, and intellectual property theft. That was the whole reason Trump launched his ill-thought out trade war in the first place by ratcheting up tariffs on Chinese goods.

If there’s no movement on those hard issues, what was the point? China announced they’re going to be buying U.S. soybeans again, but China was already buying U.S. soybeans before Trump’s tariffs. That’s not a concession. 

China also announced that U.S. rice would be allowed into their market. While this is new, market access isn’t likely to dent the trade deficit as U.S. rice prices are significantly higher than other suppliers to China, most notable from Southeast Asia.

Other Chinese government moves included reduction in auto-tariffs, already offered to the rest of the world. While some legal reforms have been mentioned, enhancing IPR protection for example, changes in law are often not fully implemented. Given the inherently political nature of China’s judicial system, companies have little recourse.

These “structural” reforms tend to be the most difficult, often edging too close to issues that party hardliners in Beijing hold dear (e.g. favorable government and financial support to state-owned enterprises.) They’ll most likely kick the can down the road like they have for years and wait out what’s left of the Trump presidency.

That’s the crux of these negotiations. Are Chinese officials convinced that Trump will hold his line or will he cave to his own domestic economic pressures? It’s looking like Trump’s eagerness for a win will trump his own hardliners who are pushing for China to fundamentally change the way they do business. While that’s a laudable goal, they’ve used the wrong tool for this kind of heavy lifting.

Adding to the uncertainty, no senior-level negotiator was present for the talks. This was more of a working level negotiation and all of the familiar figures in Washington need to give their input including U.S. Trade Representative Lighthizer, Treasury Sec. Mnuchin, and Advisers Navarro and Kudlow. Interestingly it was mainly the Agriculture Deputy Secretary who spoke to the press, not the USTR Deputy Secretary, who ostensibly led the negotiations.

So what did Trump get out of all this turmoil? Hard to say until tomorrow, and there’s still three weeks to the March deadline, but there will be plenty of spin about the great, great, concessions that no U.S. president has ever gotten from China before. 

Expect an announcement highlighting all the U.S. goods China is going buy as a result. For comparison, from Jan. to Oct. 2018 China bought $102.5 billion in U.S. goods. Over the same period in 2017 the number was $104.5 billion (U.S. Census data for 2018 is currently available through Oct.) If the structural issues aren’t resolved, don’t expect too much difference in overall U.S. exports, especially as China’s economy slows down.

Markets react quickly to news, and then adjust to facts. Trump might still get his temporary stock bump, but a sugar high never lasts. China is playing the long game and a fickle market movement is about as small a win as it gets. 


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Trump Has Few Options on Huawei Sanctions Trouble

Time is running out on the U.S. extradition request for Huawei’s CFO, Meng Wanzhong who was arrested in Canada in December. This follows an investigation on sanctions-busting by the firm related to business ties with Iran. Trump said that he might intervene in the case if it helped with the China trade impasse and for national security reasons.  As much as he’d like to use the Huawei case for political purposes he actually has few options. 

Intervening creates a dangerous linkage between national security issues and trade politics. China routinely engages in this type of politicization, and is part and parcel of their attempts to influence other countries over a variety of perceived slights. In 2017 South Korea’s Lotte department store chain shut its China operations after a concerted government effort to thwart their business (stores were suddenly hit with fire hazard violations,) when the firm gave up land to the South Korean government for a U.S. THAAD missile defense system installation. In 2011 the Chinese gov’t banned Norwegian salmon after the Nobel Prize was awarded to Liu Xiabo, a Chinese dissident who later died while in custody.

State Department Issues China Travel Warning for Americans

The U.S. is not China, and a Trump intervention would signal that the rule of law is no longer the rule of the land. The political backlash from left, right, and what remains of the center would be swift and significant.

Political intervention would make Trump look weak on China, again. Trump already gave Xi Jinping a huge gift when he lifted a ban on ZTE after its own Iran sanctions trouble. The company would have gone out of business without that commercial “pardon” to continue purchasing U.S. technology. Xi Jinping did not return the favor and blocked Qualcomm’s $44 billion purchase of NXP. China was the only country standing in the way. 

Canda Warns U.S. Not to Politicize Extradition Case (Reuters)

That’s not to say Trump won’t try, but a criminal case is harder to interfere with than the ZTE sanctions case. Politically, Democrats have the majority in the House and will hit from the left. Hardline Republicans, who want a more forceful policy on China, will strike from the right. And any meddling in the Department of Justice while Mueller’s investigations remain open would be a huge red flag for those considering impeachment hearings.

The only option is to let the legal system run its course. While this may inflame tensions with China in the short term, it reduces the chances of a U.S. political backlash.

Don’t be surprised though if Trump surprises us all and defies the collective wisdom with an impulsive response if Canada agrees with the extradition request. While he has the power to free Huawei’s CFO, promising more than he can deliver ahead of time may prove that a Trump promise made, is a promise easily broken. That would significantly weaken his trade negotiating position vis-a-vis China.


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