Trump has an edge over Xi in trade war talks — for now

A truce agreement between Presidents Donald Trump and Xi Jinping to freeze the U.S.-China trade war for 90 days buys time for further negotiations but leaves unresolved major sticking points between the countries. Despite complications arising from the Dec. 1 arrest of Chinese tech company Huawei CFO Meng Wanzhou by Canada, at the request of U.S. authorities — a situation that threatens to damage U.S.-China trade talks — President TrumpDonald John TrumpTrump claims media 'smeared' students involved in encounter with Native American man Al Sharpton criticizes Trump’s ‘secret’ visit to MLK monument Gillibrand cites spirituality in 2020 fight against Trump’s ‘dark’ values MORE presently enjoys an edge in the standoff.

His advantages relate to the strong U.S. economy, political support among the Republican Party and red-state voters, as well as China’s decelerating economy and its heavy dependence on trade.

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There is evidence that Chinese policymakers want to resolve the trade war quickly because of the threat that the prolonged dispute poses to China’s economy. China’s economy has been slowing in 2018 with GDP growing at 6.5 percent in the third quarter, missing economists’ forecasts of 6.6 percent and amounting to the weakest quarterly growth since the global financial crisis of 2009.   

Causes of the slowdown range from the country’s transition from an export-dependent and investment-based economy to one powered by domestic consumption; efforts by the national government to deleverage and reduce the central government’s eye-watering 300 percent of GDP national debt; the longstanding struggle of private firms facing systematic disadvantages in competing with state-owned enterprises; a contraction of government-backed infrastructure spending; a slowdown in the manufacturing and export sectors; and the effects of U.S. tariffs on Chinese goods, among other reasons.

Another reason Xi is likely to want the trade war resolved sooner rather than later is the disproportionate effect of trade on the Chinese economy when compared to that of the United States. China’s exports to the United States amount to a larger segment of the Chinese economy than China-bound U.S. exports represent to the U.S. economy. Consider that last year China exported goods to the United States worth $500 billion (U.S.), out of a total Chinese economy of $12 trillion, and the United States exported $130 billion in goods to China, out of its GDP of $19 trillion.

For these reasons, the trade war is likely to become an obstacle to China’s economy. This works against Xi and his credibility, since the Communist Party is expected to deliver economic stability to the people in exchange for having a monopoly of the country’s governing power and authority. From a political perspective, Xi wants to avoid further stalling and contracting of the economy.

Because of these factors, the Chinese would like to reach an accord; odds are, China will be willing to make reasonable concessions on the reduction of the bilateral trade deficit and tariff levels. This works to Trump’s advantage.

However, Washington’s demand that China abandon its decades-long economic model of forced technology transfer, intellectual property theft and state support for its high-tech strategy likely will go unheeded for the time being, and may require a separate series of summits.

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A complicating factor in China’s negotiations with foreign entities is Beijing’s aversion to being seen as backing down to foreign pressure — in this case, Trump. The Chinese are willing to go to great lengths to avoid these optics.  

There are those who assert that the Trump administration has overplayed its hand with its demands of China and underestimated Xi’s resolve and patience. They argue that Trump has overestimated the strength and wherewithal of the American economy.

Along these lines, some analysts contend that part of Beijing’s strategy is to wait out Trump, making bare-minimum commitments during his time in office and holding out for a more accommodating administration to come to power. This approach may yield dividends for Xi if the U.S. economy enters a recession; if American public opinion sours on the trade war; or if Trump’s time in office ends without a resolution to the stalemate.   

There has been fallout to this trade war. Markets have been jittery; U.S. market gains for 2018 were wiped out because of concern about the prolonged tensions and by investors’ uncertainty about details of the 90-day truce. This past week, confusion arose after U.S. National Economic Council Director Larry Kudlow backtracked on Trump’s announcement that Beijing agreed to reduce tariffs on U.S.-made automobiles.

To Trump’s and Xi’s credit, the trade war ceasefire negotiated in Buenos Aires on Dec. 1 allowed both countries to avert a more serious trade war and broader economic conflict. Still, it will be difficult logistically and politically for Xi to agree or put in place the drastic changes that Trump is requesting China make to its economic system.   

The ball is in Beijing’s court, as to the extent it will go to address Washington’s concerns. Some analysts predict that Xi is likely to propose tariff reform by committing Beijing and all World Trade Organization member-states to zero tariffs over time as a way to defuse the crisis and, in the process, become the chief advocate for global free trade. Others opine that Xi may use the current climate to China’s advantage and attempt to outflank the United States geopolitically by seeking entry into the Trans Pacific Partnership.  

Trump benefits from the power of incumbency, continued political backing of his party, a strong U.S. economy with unemployment at a 49-year low, and the advantage of running the larger and less trade-dependent of the two economies. These strengths provide Trump with temporary leverage over Xi, particularly while his base opts not to oppose his trade war.

Yet, the transitory nature of Trump’s advantages indicate that this trade war may have a way to go until its resolution.  

Ted Gover, Ph.D., writes on U.S.-Asian relations and foreign policy. He is director of the Tribal Administration Program at Claremont Graduate University in California, and an instructor of American government at Central Texas College, where he teaches political science for the U.S. Marines Corps at Camp Pendleton, California.