After US-China talks: No trade war but Xi-Trump bromance cools

If you haven’t heard already, the first US-China Comprehensive Economic Dialogue in Washington this week was a dud.

Neither China nor the US budged on any tough trade issues. Both sides nixed their press conferences and a joint statement at the end of the one-day session on July 19 and announced no new agreements on trade. The annual dialogue also closed with the threat of US tariffs on Chinese steel and aluminum imports in the air.

Is the Xi-Trump bromance over? Robert Lawrence Kuhn, a long-time adviser to China’s leaders and multinational corporations, says the lack of progress in the bilateral trade talks was no surprise. They occurred, he adds, at a time when neither President Donald Trump nor President Xi Jinping can afford to show weakness. 

But a trade war definitely isn’t in the offing and Kuhn says Beijing will offer a way out. He’s also convinced that China will open its markets more. 

On the downside, the host of “Closer To China with R.L. Kuhn”  on the China Global Television Network (CGTN), says the latest North Korean missile test flies in the face of the cooperation and rapport that Trump claims he developed with Xi at the Mar-a-Lago summit in early April.

Kuhn, in a Q&A with Asia Times, also notes that the threat posed to China’s broader economy by the indebtedness of family conglomerates such as Dalian Wanda is still small, despite what has been reported in the US press. But Kuhn says the government is cracking down, lest other Chinese firms follow Dalian’s “freewheeling” ways.

Is the US and China’s failure to reach an agreement on trade at the economic dialogue talks a serious development?

It’s an expected development, Neither side can afford to look weak. President Xi and China’s leaders are preparing for the upcoming 19th CPC National Congress this autumn. President Trump made confronting China a major campaign promise and protecting US jobs a foundation of his political base.

That said, a trade war benefits neither side, and so, after a little brinkmanship, I expect some kind of temporizing, if not resolution, signals.

Is the Xi-Trump bromance over? Has the upbeat tone and good will of the Mar-a-Lago summit dissipated?

North Korea’s missile tests create a stark, blazing fact that cannot be obfuscated away, sharply reducing Trump’s flexibility to claim success while announcing some compromises on trade. I think Trump respects Xi, whereas China’s leaders do not like Trump’s unpredictability.

Other observers have noted that no Chinese leader would give the impression of capitulating to US pressure ahead of this fall’s 19th Party Congress. What is the likelihood that China will make concessions to the US on trade after the party congress is over?

President Xi’s position is already sufficiently strong so that he could make wise decisions for China even if they aren’t popular domestically. But the 19th CPC National Congress is axial in establishing leadership for the next five, ten or more years — such that all decisions made prior will have a “short-term stability and strength” test.

I am convinced that China will open its markets more. This will be targeted in markets where China needs help, such as in healthcare and probably financial services. Xi literally said so in the past few days because this is good for China in terms of increasing competition and boosting productivity. But this will not happen because of foreign pressure.

China will not present agreements as “concessions,” but as “win-win” cooperation. This is a cornerstone principle of Xi’s foreign policy.

If China widens market access what form will it take?

Opening more markets for foreign investment and using “negative  lists,” while cutting bureaucracy. The markets targeted for opening will be those crucial to China. These will include environmental, water, biomedical and healthcare facilities technologies.

What about the issue of Chinese steel exports?

The problem of steel is now too big to sweep away. Trump needs a “win” and China will seek minimum concessions with quiet side benefits — such as a US commitment to limit tariffs and quotas in other areas. China wants the substance, not the flash.

What will China do if the US imposes tariffs on Chinese steel and aluminum imports?

China seeks stability, especially as its economy is developing steadily and surely prior to the 19th CPC National Congress. If the US imposes tariffs and or quotas, China must retaliate, but it will do so in a manner that signals a desire to ratchet down the tensions, limit the “war” — which means a response that is slightly less than proportional.

The official watchword in China in the last year has been on preserving economic and political “stability.” What are the biggest threats to this stability from the Chinese view?

Political stability looks solid, with President Xi designated as ‘core’ of the Party and placing his people in key positions. Economic risk is clearly the financial system, especially corporate debt.

Xi has made strong public statements about debt. His heralded, overarching strategy is called “supply side structural reform”, which advocates strong party-state intervention to consolidate and deleverage state-owned enterprises, reducing profit-destroying industrial overcapacity in basic industries like coal, steel, cement, non-ferrous metals, basic chemicals, sheet glass and the like – very different from the Ronald Reagan, deregulation-based, supply-side economics of the 1980s (as Xi himself makes clear).

In addition, concern about financial risk is why, for example, there has been a sequence of policies and investigations, such as instructions to banks to review/reduce credit for foreign acquisitions in real estate, entertainment, etc. and targeting five or so aggressive Chinese firms doing overseas acquisitions.

Another new policy is that local officials will be now held accountable for debts originated on their watch even after they move on or even retire – this, in the Chinese system, is especially meaningful and novel, since local officials commonly put on debt because the benefits of investment show quickly in boosting GDP while the payback dangers come years later (after the local officials have been promoted or retired). Now, local officials will think twice!

Are Chinese officials seriously concerned about the risks to the broader economy posed by the indebtedness of large family conglomerates like Dalian Wanda and Anbang Insurance Group?

They are concerned, but there are multiple reasons for this targeting as the amounts, even in aggregate, are too small to really affect the economy. One reason is that these firms are very high profile, so that if they are allowed to continue in their freewheeling ways, it would give many other companies the excuse to not comply. 

Another reason for the government crackdown is that people think these companies have been given “special favors.” The perception persists — irrespective of the reality. This undermines public support for Xi’s campaign of rectitude and anti-corruption.

Doug Tsuruoka is Editor-at-Large of Asia Times