Speculation was once again churning this week about whether the US and Chinese presidents can back away from an all-out trade war precipice when they meet at the Group of 20 summit on Friday.
US President Donald Trump received something of a shot in the arm ahead of his dinner with his Chinese counterpart Xi Jinping when the US Federal Reserve signaled it might take its foot off the rate-hike pedal, a shift some see as strengthening Trump’s hand in negotiations.
But the possible change in future Fed policy – which would weaken the dollar, as Fed chairman Jerome Powell’s comments did this week – would also give a boost to emerging markets and ease pressure on the Chinese yuan.
And there is one reason the opportunity presented on Friday is entirely different from previous rounds of failed trade talks.
Wang Huiyao, president of Beijing-based think-tank the Center for China and Globalization, told Asia Times that from the perspective of Beijing, the doors are closed without Trump at the table.
“In China, people are looking to the highest leaders for confidence,” Wang said on Wednesday from Berlin, where a delegation from Beijing is visiting, including the front man for US trade talks, Liu He. “I think that the leadership’s view is very important just like [when] China joined the WTO. [The decision] was really finally made by the top leaders.”
Twice last spring, top Trump administration officials signaled that offers from Beijing would be enough to prevent the imposition of new tariffs. In both cases, Trump vetoed the expected deals, pulling the rug out from under his own cabinet members and prompting Beijing to lose faith in talks with anyone but the man on top.
Against that backdrop, Beijing has been reluctant to send trade delegations to Washington with no guarantee that they would have an opportunity to speak with Trump or someone with a true mandate to negotiate on his behalf.
Liu He’s trip to Germany this week reportedly came instead of a planned visit to Washington. In September, his scheduled visit to the US capital was canceled amid signals that Trump was determined to impose new tariffs on Chinese goods.
But Liu stressed in a speech in Hamburg on Wednesday that “no one ever emerged as a winner from a trade war.… Our approach, therefore, is to seek a negotiated solution.”
President Xi was also in Europe on Wednesday, doing his best to convince the world China is ready to open up further.
Speaking to Spanish lawmakers in Madrid, Xi reiterated a pledge to step up imports, which he said would total US$10 trillion worth of goods over the next five years. He also signaled, again, that China was ready to make trade concessions on market access and intellectual-property protection.
“China will make efforts to open, even more, its doors to the exterior world and we will make efforts to streamline access to markets in the areas of investment and protect intellectual property,” Xi was quoted by Chinese state media as saying.
While market access in areas such as financial services has been floated in the past, the failed attempts at reaching a truce last spring were focused merely on China purchasing more US agriculture and energy products. A bilateral agreement dealing with IP protections was not on the table.
In a closely watched speech on Wednesday afternoon, Federal Reserve chairman Jerome Powell made comments widely interpreted as a signal to expect fewer interest-rate increases. US stocks rallied to erase November losses and the dollar declined sharply.
The news followed stepped-up criticisms from Trump in recent days – amid falling US stock valuations – that hawkish Fed policy was weakening the economy and ceding advantage to trading partners.
Besides blaming rate increases for stock-market weakness and General Motors’ recent decision to lay off 15,000 workers, Trump has also specifically complained that the hawkish monetary policy gives China a competitive edge in trade, as he did in a tweet last July.
China, the European Union and others have been manipulating their currencies and interest rates lower, while the U.S. is raising rates while the dollars gets stronger and stronger with each passing day – taking away our big competitive edge. As usual, not a level playing field…
— Donald J. Trump (@realDonaldTrump) July 20, 2018
White House officials, including top economic adviser Larry Kudlow, have expressed agreement with Trump’s view that strong US stock-market performance, and an equities slump in China, give the US the upper hand in trade talks.
But the Fed’s shift also reflects widespread concerns that the global economy is heading for rocky waters. No matter how optimistic Trump administration officials are about the domestic economy, there’s no denying that a global downturn will hit the US.
The dinner at the G20 on Friday, which will be attended by trade delegations from both sides – sans China hawk Trump trade adviser Peter Navarro, who was nixed from the guest list – offers the best opportunity either side has or will see for a long time to find an off-ramp.