Trump, Xi face pivotal moment in trade war

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Fresh off Republican losses in the midterm elections and with an eye on his own reelection, President Trump heads into a high-stakes meeting on trade this week with Chinese President Xi Jinping as clouds loom over the global economy. 

The two leaders are scheduled to meet for dinner on Saturday at the Group of 20 (G-20) summit in Argentina to discuss a possible truce that could tamp down an escalating trade war between the world’s two largest economies.

Trump is seeking concessions on long-standing problems, such as alleged intellectual property theft and exploitative trade practices, while Xi is hoping the president pledges to delay or scrap plans for new tariffs on Chinese goods.


The outcome could signal how much anxiety Trump is feeling about the U.S. economy, which he views as a referendum on his presidency, and to what extent he is willing to amplify his roiling dispute with a major trading partner.

China watchers in Washington are beginning to coalesce around the idea that Trump may hold off on further trade actions against Beijing for now out of concern that he could end up shouldering the blame if the trade war helps trigger a recession.

“This economy is doing quite well, but it could be slowing down,” said Gary Hufbauer, senior fellow at the Peterson Institute for International Economics. “The global economy is slowing down, and the prospect of a China trade war could provide a big hit. That’s the domestic angle, which is weighing pretty heavily on him.”

It remains far from certain that Trump and Xi will agree to a ceasefire this week. Administration officials have expressed disappointment with China’s response to a list of U.S. demands, saying Beijing has given virtually no ground on the fundamental issues causing tensions between the two nations. 

But Trump has signaled a willingness to reach an agreement with Xi after the two leaders, who once tried to project a close relationship, went months without any direct talks. They resumed communication earlier this month.

“I think that China wants to make a deal very badly,” Trump said this week in an interview with The Washington Post.

But the president warned that if no agreement is reached, “we’ll be taking in billions and billions of dollars a month in tariffs, and I’m OK with either one of those two situations.”

Trump will enter the meeting at the end of a week in which he was ambushed with a slew of negative headlines that raised doubts about the strength of the U.S. economy.

Stocks on Wall Street have grown increasingly volatile. Trump has raged against his hand-picked Federal Reserve chairman, Jerome Powell, for raising interest rates. And General Motors announced it will lay off thousands of U.S. workers.

The pain from GM’s plant closures will primarily be felt in Ohio and Michigan, two states Trump won in 2016 with his pledge to revive American manufacturing.

A new report from the Federal Reserve Bank of Minneapolis found that farm bankruptcies are on the rise in Wisconsin and other Upper Midwest states as Trump’s trade skirmish with China has dampened the market for U.S. agricultural commodities such as soybeans.

Meanwhile, the housing market in the Dallas area is reportedly suffering, which real-estate professionals fear could signal a slump for the rest of the country. Republicans lost a House seat in the traditionally red Dallas suburbs in the Nov. 6 midterm elections.

Trump can ill afford to lose political ground in those key areas in the lead-up to the 2020 presidential election, and observers say the recent developments could increase his desire to strike a deal with Xi and leave Saturday’s dinner with a victory in hand.

“Trump would like to say, ‘My policies are working,’ ” said Hufbauer. “It gives him sort of a political win and it will be favorably received by the financial markets. He likes that. He likes a strong, buoyant stock market as we have seen.”

Unlike Trump, Xi has little to worry about when it comes to his domestic political standing after having strengthened his grip on power over the past two years.

But U.S. officials argue there are signs of economic weakness in China, pointing to the Shanghai stock exchange’s poor performance this year. They also say tariffs have done far greater damage to the Chinese economy than to U.S. market, which they point out still has a robust labor force and strong gross domestic product growth.

“I’m not suggesting that there aren’t winners and losers in that game. It’s a complicated game,” said top White House economic adviser Larry Kudlow, referring to U.S. tariffs on Chinese goods. “But on the other hand, I think we are in far better shape to weather this than the Chinese are.”

Trump has indicated he plans to raise the existing tariff rate on $250 billion in Chinese imports from 10 percent to 25 percent on Jan. 1. The president has also threatened to impose tariffs on an additional $267 billion in Chinese goods, a move that observers say could exacerbate already deteriorating trade relations.

If Xi agrees to address certain U.S. concerns, experts say Trump may decide to pause the Jan. 1 tariff increase and hold off on imposing new tariffs. China might also agree to purchase more U.S. goods, such as pork and soybeans, that come from the agricultural heartland where Trump won in 2016.

Any deal is expected to be limited in scope and leave central disputes unresolved. The Trump administration has ramped up its rhetoric against Beijing on everything from territorial disputes in the South China Sea to allegations of election meddling, with no signs of backing down. 

Xi might agree to formal negotiations on issues such as forced technology transfers, ownership of U.S. firms operating in China, trade barriers and cyber hacking, while stopping short of making concrete concessions.

Kudlow said the administration was not impressed with a list of 142 Chinese proposals submitted to the U.S. ahead of this week’s G-20 summit. “We can’t find much change in their approach,” he said. 

Matthew Goodman, senior vice president at the Center for Strategic and International Studies in Washington, said the administration wants to see signs of a good-faith effort from China.

“I don’t see any scenario in which the U.S. accepts that list as a solution to the problems and says, ‘OK, we’re done,’ ” Goodman said. “I think what the U.S. is looking for is an indication, a signal from the Chinese government that it takes the U.S. concerns seriously and is ready to have a serious conversation about taking on some of those issues.”

However, some experts cautioned that with Trump’s unpredictability, he could walk away from the meeting with no deal and move ahead with tariffs.

The Asia-Pacific Economic Cooperation summit concluded earlier this month without a joint communique amid a disagreement over trade language between the U.S. and Chinese teams led by Vice President Pence and Xi.

Goodman handicapped the chances for an agreement in Argentina at 51-49 “at best.”

Another wild card in Buenos Aires will be Trump’s team of advisers, which has been riven with divisions over how to respond to Chinese trade practices. The makeup of the president’s retinue has been closely watched ahead of the summit for indications of how he plans to approach his meeting with Xi.

Kudlow told reporters on Tuesday that White House trade adviser Peter Navarro, a vocal China hawk, would not accompany the president to the summit. But The New York Times reported the following day that Navarro has been approved to travel.

White House spokeswoman Lindsay Walters said there has been “no change” and that the Navarro will not be attending.

Navarro has repeatedly encouraged Trump to stick to his tough line against China, a 2016 campaign pledge that resonated in Rust Belt communities where manufacturing jobs were decimated by globalization over the past few decades.

But Navarro has clashed with mainstream Republicans on Trump’s staff, including Kudlow, who publicly berated Navarro this month for suggesting that Wall Street was influencing trade talks and for attacking people urging Trump to compromise with China.

Others on Trump’s economic team expected to attend are Treasury Secretary Steven Mnuchin, who has also advocated a cautious approach with China, and U.S. Trade Representative Robert Lighthizer, a longtime China critic.

Lighthizer announced Wednesday he would be looking into possible retaliation against China for high tariffs on U.S. auto exports at Trump’s request. The president earlier floated the possibility of raising tariffs on imports in response to GM’s layoffs.

“The difference of views between various Trump advisers is clear. But it’s also true that the president is the president, and he’s the decider,” Goodman said. “He has his own view and approach and interests and incentives in this debate.”

Tags Donald Trump Robert Lighthizer Steven Mnuchin US-China trade relations
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