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.


For commentary direct to your inbox sign-up for the Decision Analytics newsletter above.

U.S.-China Trade Deal Already in Doubt

 

Trump Chaos Rattles China Trade Negotiations Before They Even Begin

Just days after President Trump claimed success in trade disputes with China, disagreement over the details have emerged. That rings with a familiar tune.

The Trump-Kim Summit this past June in Singapore raised similar doubts about what, if anything, was actually accomplished. It turns out that even with a loosely worded document we now know that nothing was formalized after that highly touted success.

While North Korea continues to develop missiles and possibly more nuclear weapons, Trump complains he hasn’t been offered the Nobel Peace Prize for his efforts. 

The Saturday Trump-Xi dinner in Buenos Aires didn’t even offer anything in writing and journalists were left guessing why applause erupted from behind closed doors as the dinner ended. There was no press conference or photo op to clear up the issue as Trump & Co. headed for the airport.

After landing, Trump claimed Chinese auto tariffs were being lifted. The White House has now walked that back. Trump claimed China would spend over $1 trillion on U.S. goods. His economic advisor Larry Kudlow said that was more aspirational than specific and would be determined by private entities and economic conditions. Trump said if China doesn’t make bold moves in ninety days, he’s Mr. Tariff, and then suggested the timeline might be extended.

No one knows what success looks like three months from now, and that’s a serious problem.

Now China has expressed its discontent with the White House version of winning it all. Yet again, Trump excels at undiplomatic posturing while others are left to clean up his mess.

The pattern here is clear. Trump’s erratic words cannot be trusted, only managed, even by those closest to him. It’s another episode of “Promises Made, Promises Broken.”

U.S. markets didn’t like that kind of uncertainty, and along with other negative financial news on Tuesday, they shed over 3% in one of the worst days in their history. 

Making matters worse, US Trade Representative Lighthizer replaced Treasury Secretary Mnuchin as lead negotiator. Lighthizer is a known China hawk, and while having someone strong-willed and skeptical at the table is an advantage, if the lead isn’t considered to be negotiating in good faith that will not end well for bilateral relations or the international trading system.

The biggest risk at the end of February will be China claiming they did everything they said they would do and the U.S. saying whatever they did wasn’t enough.

Chinese state media has already started making the list and announced increased punishments for firms found guilty of IP theft, but will they be implemented?   

If Trump really wants to reduce the trade deficit, protect intellectual property, and remove investment barriers, he and his team are going to have to be far more disciplined than they have been to date, and that seems highly unlikely.

Playing loose and fast with the facts, tweeting exaggerated wins, and painting Chinese negotiators into a corner will not make this relationship work. Both sides have to be able win.

 

G20 – What to Watch

 

 

11/30/18 – Updates on potential Trump-Putin meeting below.

The city center is bulking up on barricades and armed officers as world leaders being arriving for this year’s G20 meeting. Some 22,000 security personnel are being enlisted to keep the peace as anti-globalization and leftist political protests are expected, though they’ll be confined to a largely emptied part of town. The Argentine economy is under significant stress with 45% inflation and the peso more than doubling over the last two years against the dollar. Major parts of downtown will be completely closed, including cafes and shops. 

Saudi Arabia’s Crown Prince Mohammed Bin-Salman arrived on Wednesday and French President Macron is on the ground today. Trump is expected Friday along with several hundred press in tow. How many are fake news, but real people, will likely be tweeted ad nauseam starting late Saturday as Trump winds up his 48 hour stint in Argentina. 

Here are a few of the potentially most controversial issues to come out of the annual gathering.

 

Will there be a joint statement? 

After the debacle at APEC where the U.S. and China were at loggerheads over the final text and in an unusually thuggish move, the Chinese delegation stormed the offices of the Papua New Guinea Prime Minister’s office demanding changes. In the end there was no agreement over language for a final statement, the first time since APEC’s founding in 2003. 

For context, those final statements are mostly aspirational with very watered down, benign language that all participating countries can sign off on. They aren’t even legally binding. Early drafts are usually negotiated well in advance.

Will the same happen at the G20 with an even more complex set of issues in play including climate change (which Trump doesn’t believe is a scientific fact), migration (U.S. troops still on the border with Mexico), economic growth, health, sustainable development, the international financial architecture, and a host of other issues in addition to an “Action Plan.”

For comparison here’s a link to last year’s statement. 2017 G20 Leader’s Declaration 

 

Lots of Deals, or Not

Part and parcel of G20 gatherings are major business deal announcements and project financing, aka deliverables. Most, if not all of these, have either been in the works for months or already started, but it makes the event look like a venue where things get done. China is funding Argentina’s fourth nuclear power plant and if the proliferation of China’s ICBC bank branches across the capital are any indication, financial ties are strengthening even during Argentina’s economic downturn (Citibank sold its retail operations to Santander in 2016 further shrinking U.S bank presence in the country.)

Teatro Colón (Colón Theatre) in Buenos Aires
Site of cultural event for Leader’s Summit

What, if anything, will the U.S. be announcing in terms of large deals in Latin America? The re-negotiated NAFTA with Mexico and Canada is already old news as is Argentina’s new beef exports to the U.S. China’s financing largesse is likely to overshadow any announcements by Trump unless the numbers are “bigly” and “yuge.” There are no signs of that happening.

Trump-Xi Statement

Rumor has it Trump and Xi are meeting for dinner on Saturday night, with the venue and menu yet to be reported. The outcome of that feast may well determine the near-term future of global trading relations, major stock market movements, and a wave of punditry over the temperature of a new Cold War. Trump’s economic adviser, Larry Kudlow, tried to strike a positive tone this week suggesting a deal could be made over the tit-for-tat tariffs that have roiled markets, while hedging with a statement that China needs to offer more. Trump, with his illimitable bravado, threatened even more tariffs.

Meanwhile China’s President Xi continues to travel the world (most recently Spain) and continues to tout support for free markets and the allure of China’s growing market. So far there’s been no mention of structural reform and there likely won’t be. State-owned enterprises are a fixture of China’s Communist Party rule despite its turn towards capitalism, and no threat from the U.S is going to change that. 

 

Trump-Putin Meeting

Update 11/30/18 12:54 – Russia says a meeting with Trump is still on as with other leaders. WH says nothing has changed. They may be splitting hairs on what “meeting” means. Technically a “pull aside” is not an “official” meeting since it doesn’t involve a formal sit down with advisors, etc. and can take place for a very short time. A pull aside also doesn’t carry the same gravitas as a formal meeting, but leaders still talk to each other, and usually without press or even a briefing afterwards.

Update 11/29/18 11:45 – Trump tweets cancellation of his G20 meeting with Putin citing Russia’s continued seizure of Ukrainian ships and crew. That leaves door open if they’re released in the next two days, but suspicions swirl that this has to do with more Cohen revelations of pursuing a Moscow deal during the campaign.

Official White House Cancellation of Putin Meeting Announced via Tweet

As of 11/29 the meeting has been cancelled via Trump’s tweet and then on 11/30 Russia says they will still meet. Who knows what “meet” means anymore.

No matter how this pans out, the on-again, off-again announcements make the U.S. look weak and confused. If Trump does end up meeting Putin, even in an “unofficial” pull-aside, he appears to be dancing to Russia’s balalaika (stringed Russian musical instrument.) There will be no time for an in depth discussion of Iran, missile treaties, Ukraine, North Korea, Syria, or a handful of other pressing issues. 

It’s amateur hour in Buenos Aires for the U.S. delegation, in part or by design thanks to Trump’s inability to stay on point and engage with the international community in any strategic way. Have no doubt though that WH Comms will spin this as a series of successful events during an intense two days of high stakes diplomacy.  

. . . It will certainly be a whirlwind few days of summitry, though don’t expect any mountain peaks to be topped with major announcements. 

If you like this post please share it widely and often. For Twitter updates join the conversation @brianpklein.  Thanks.