US President Donald Trump and Chinese President Xi Jinping attend a state dinner at the Great Hall of the People in Beijing on November 9, 2017. Photo: Reuters / Thomas Peter
US President Donald Trump and Chinese President Xi Jinping attending a state dinner at the Great Hall of the People in Beijing in 2017. Photo: Reuters / Thomas Peter

US President Donald Trump’s 2-days+ visit to Beijing received state-visit+ treatment as promised, and he showed a video of his granddaughter singing a popular Chinese song in Chinese, which President Xi Jinping applauded with a rating of A+. It was by all accounts quite a felicitous, triple+ event.

Showing his cute granddaughter singing and reciting poetry in Chinese was a masterful touch. The Chinese love seeing foreigners adopt Chinese language and culture. Even awkward novice attempts are warmly encouraged and welcomed.

Contrary to his reputation for unpredictability, Trump had no surprises up his sleeve. His public posture was that of a statesman and diplomat. He most likely dispelled the fears and exceeded the expectations of many.

The short press conference that followed their private conversation was warm and positive and emphasized collaboration and cooperation. On issues where they differ, their agreeing to disagree seemed respectful and amicable.

Of course, whether such a warm and forward-looking beginning will lead to “progress for the benefit of the peoples of both countries,” to paraphrase Trump, depends on follow-up meetings between negotiating teams delegated by their respective leaders.

Contrary to his reputation for unpredictability, Trump had no surprises up his sleeve. His public posture was that of a statesman and diplomat. He most likely dispelled the fears and exceeded the expectations of many

If the ensuing negotiations by the respective groups follow the spirit of seeking to build from common interests, progress could be made. But observers in Washington are already claiming that once Trump returns to the White House, advisers from the confrontational school will resume their places with the same old tired arguments in favor of treating China as an adversary. It will be business as usual; nothing changes.

During the press conference, Trump did state that China and the US would join together to fight global terrorism. This could be a significant shift in attitude. In past administrations, the American position fell more along the lines of  “my terrorists are your terrorists, but your terrorists might not be mine, subject to case by case review.”

Mindful of the opioid overdose epidemic in the US, both leaders also agreed to cooperate in the effort to stop fentanyl trafficking. Fentanyl is a potent form of synthetic opioid and a leading cause of death by overdose in the US. China agreed to broaden the control of fentanyl precursors and to halt the illegal manufacturing of the drug inside China.

China, in turn, had asked for American cooperation to facilitate the repatriation of fugitives now residing in the US. Some exchanging of information and joint investigations have already taken place. What is lacking is a bilateral agreement that would facilitate extradition and act as a deterrent. Trump offered his support for closer collaboration.

Other issues were not as easy to resolve.

Neither directly talked about the South China Sea territorial issues, but Xi said that the Pacific was big enough for both countries. Both leaders agreed to increase the frequency of military meetings and exchanges as a way of lessening tension. To my knowledge, Xi did not offer to initiate the exercise of freedom of navigation in the Caribbean as quid pro quo for American warships in the South China Sea.

Trump’s comments at the press conference regarding North Korea were tactful and he did not insist, as he has on many other occasions, that China take care of the denuclearization of North Korea for America. This time, he simply said that every nation must apply tougher sanctions against North Korea in order to bring the regime to heel. Xi simply remarked that yes, China will impose sanctions consistent with the UN guidelines; he also believed that negotiations must accompany sanctions.

Unfair or uneven trade was another knotty issue that has not seen any daylight. China is taking unfair advantage of the US open market has been Trump’s position, as it has been that of his predecessors. At the press conference, Trump’s diplomatic position was that “it’s not China fault for taking advantage our open market.”

Xi promised to do more to open China’s market but he also pointed out that China could buy a lot more from the US if the US weren’t so restrictive on the export of technology-based products. The idea that high-tech products for civilian use could potentially have military applications has throttled export sales to China.

It is disappointing that the debate on trade with China has not changed much for at least the last three administrations. Many of the American assumptions underlying this debate have been dubious.

Here is a summary of arguments relevant to the trade issue.

  • Low-cost imports from China are not harmful to American interests. On the contrary, they are beneficial because US consumers enjoy lower prices. Jobs are not lost because this kind of manufacturing could no longer be done competitively in the US.
  • Nothing in the principles of economics demand balance in the calculation of bilateral trade. So long as trade is not based on predatory practices such as hidden subsidies, then trade is fair and market-based.
  • Bilateral trade statistics have been biased in the way import value is calculated. A popular example used to illustrate the distortion is the iPhone. Value added by the assembly work done in China represents less than 10% of the value of the final product. Yet the entire value of the phone is attributed to China as the country of origin.
  • Around 60% of China’s exports to America are made by US subsidiaries and joint ventures in China. China gets the blame for the trade surplus but it’s the American companies that pocket the revenue.
  • The trade in services is overwhelmingly in favor of the US, around four times greater than China’s export of services to the US, and it is the fastest-growing sector.

Taking all this into consideration, the so-called trade imbalance is much less than Trump claims.

Encouraging inbound investments from China would be another way of achieving a balance of payments, but the potential is strangely and ironically under-realized. With rising labor and land acquisition costs in China, Chinese companies are increasingly looking to locate manufacturing plants in the US. Closer proximity to the market and lower energy costs can make locating in the US economically appealing.

Nearly every governor and many city mayors in America understand the value of Chinese investments in creating jobs and increasing the tax base. Many make regular visits to China to entice Chinese companies to locate operations in their neighborhood. Yet the federal government seems intent on raising the barrier to Chinese investments by strengthening the mandate of the Committee on Foreign Investment in the US.

China’s economy will soon surpass America’s. To discourage Chinese companies from investing in the US is truly against America’s national interests. Xenophobia and China bashing have real costs.

When Trump returns from his trip to Asia, it will be interesting to see if the upbeat feelings generated in the private meeting between the two leaders in the Forbidden City will lead to a new direction for bilateral relations – one that represents a win for the peoples of both countries. Or perhaps it will just be another opportunity lost as Washington goes back to bashing China.

George Koo retired from a global advisory services firm where he advised clients on their China strategies and business operations. Educated at MIT, Stevens Institute and Santa Clara University, he is the founder and former managing director of International Strategic Alliances. He is currently a board member of Freschfield's, a novel green building platform.

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