President Trump has invited China’s President Xi to stick around after the G20 Summit in Buenos Aires so that Trump can host a dinner party – “maybe hamburgers, maybe more; it’ll be just great, great,” he might have said.
Xi has tentatively accepted and the world can assume that the two leaders will engage in substantial conversation about the trade war, tension in the South China Seas and other subjects of deep concern to both countries.
While the Dow Jones seems to flutter up and down depending whether the pre-summit preparatory talks by officials are perceived to be going well or not, most observers following Trump closely are not expecting much to come out of the coming summit.
A major reason for low expectation is Trump’s notorious negotiating style. He says one thing and means another. He always reserves the right to abruptly change his position at any time.
This approach might have proven effective in his real estate dealings, keeping his competitor off balance, but is not any good for building trust and confidence with foreign countries.
He has also made a list of harsh demands and expects China to come to Washington, hat in hand, with a list of concessions in exchange for the privilege to sit down and negotiate. Trump seems to think the Chinese would accept his upside down process, namely for China to concede first, and then negotiate.
Trump objects to Made in China 2025
Probably the most surprising among all this is Trump’s indignation that he finds China’s Made in China 2025 “insulting” and demands China retracts the national plan.
Made in China 2025 is meant to be an aspirational document to encourage the Chinese people to aim high based on excellence in STEM and by the dint of their own efforts.
It’s puzzling as to why MiC 2025 is any of Trump’s business and that he should find it offensive.
Nothing in the document says anything about commandeering US technology or about pushing American heads under water in order to advance China.
Instead, it’s China that should feel offended that Trump finds China’s aspirations insulting. Instead of spelling out his own set of national aspirations to compete with China, Trump is trying to push the Chinese underwater as a way for the US to stay on top.
Thus we are left to speculate as to the possible outcome of the dinner discussion in Argentina. Will it presage the beginning of a cold war between China and the US? Or will it make some advances in the trade war negotiation?
The hostile tone of speeches given by Vice-President Pence as a stand-in for Trump suggests that the US is heading toward confrontation. He accuses China of militarizing the South China Sea. Yet it’s the American Navy that regularly patrols the water in the name of exercising Freedom of Navigation.
Apparently sending your warships thousands of mile away from your home base to sail around China’s territorial waters is friendly but for China to develop military bases on its offshore islands is unfriendly.
Hijacking intellectual property
Pence and the rest of Trump’s China team accuse China of forcing the transfer of intellectual property in order for US companies to do business in China.
It’s true in the early days when China joined the WTO, China as a developing country with backward technology was allowed to protect certain key industries. Protection included the requirement that the foreign company must form a joint venture with a Chinese company. In the process, foreign know-how was shared with the local entity.
There is no denying that the strategy was helpful for China to catch up. Now as the second largest economy with its mounting collection of native-grown intellectual property, China should no longer need to insist on forming JVs to access foreign technology.
Removing this stipulation as a condition for doing business in China would take away a sensitive bone of contention.
However, as usual, the Americans have blown the matter out of proportion and acted as if a denied access to IP from the US would cause China to dry up and wither on the vine.
An indication of Trump’s irrational arrogance is his policy to restrict visas for students from China. His rationale is that the students are there to steal national secrets and receive valuable training to bring back to China.
He is apparently ignorant of what elite American universities already know – that Chinese students make contributions far exceeding their numbers. Furthermore, most choose to remain and work in the US.
Trump’s new policy actually encourages the best and brightest to go back to China. His track record suggests that he likes to sock himself in the eye and then declare himself a winner.
Trump: trade surplus is evil
Trump’s original trade dispute with China rests on the simplistic idea that anyone enjoying a trade surplus with the US is “insulting” and must be stealing from the US.
In his ideal world, each trading partner would sell to the US no more than what they can buy from the US, a ludicrous and impractical proposition that makes no sense economically.
In one of the early discussions, the US side demanded that China buy more from America to reduce the trade surplus by US$100 billion. Upon looking around, the US negotiating team to their chagrin discovered that China may be ready to buy, but the US doesn’t have enough products to sell.
In Trump’s view, China’s top-down allocation of resources in favor of state-owned enterprises give the SOEs unfair advantage in competing with American companies without such a subsidy.
Actually, a recent report by the Rhodium Group for the Asia Society revealed that SOEs make up only 5% of all the companies in China, but account for 28% of the industrial assets and generate only 18% of the total profits. Their return on assets is a woeful 2.9% vs 9.9% for private enterprises. At a minimum, Trump’s fear of China’s SOEs has been misplaced.
As president, Trump has materially changed the bilateral conversation with China. As Hank Paulson pointed out in his speech in Singapore, Trump is leading the US on a divergent path away from China.
Rather than seeking to work together based on common interests, the US is putting down China as best as it could. For example, the White House is clearly intimidated by China’s Belt and Road Initiative.
Pence: Beware BRI projects
Pence, in particular, has been going around warning third world countries of China’s predatory financing associated with the BRI projects.
It’s true that the BRI projects in Sri Lanka did not work out. But Sri Lanka was an exception. Most third world countries continue to want to be part of China’s BRI. However, the negative publicity should prompt China to calculate the financial viability of every new project with more care.
On the other hand, projects financed by the Asian Infrastructure Investment Bank have followed the discipline of World Bank financing. AIIB founded by China has a multinational staff and practice of transparency.
To date, India has been the largest beneficiary of BRI projects funded by the AIIB, and there have been no complaints about predatory terms.
In his speech, Paulson notes that there are no winners in a trade war and suggests that Trump is dropping an iron curtain between China and the US, and forcing other countries to choose sides.
China offers collaboration and assistance on infrastructure projects along with free and open trade. The US is known to focus on “America first,” and does not have a priority to help others. If forced, which side do you think these countries would choose?
Navarro takes on Paulson
In response, Peter Navarro proclaimed that the US was winning the trade war with China and President Trump does not need shuttle diplomacy. Clearly, in reference to Paulson, Navarro said: “Wall Street, get out of those negotiations.”
Before Paulson became the US Secretary of Treasurer under the George W Bush administration, he was chairman of Goldman Sachs. He worked closely with China’s leadership during the financial crisis of 2008 to prevent the total collapse of the US banking system and the global economy. His credentials are well established.
Navarro’s credentials? He was five times loser for political office and in one post-election pout, he said: “I don’t have any concerns at all about making stuff up about my opponent that isn’t exactly true.” Sound familiar?
For Trump’s 2016 campaign, Navarro co-authored with Wilbur Ross an economic roadmap on dealing with China. A public letter signed by 370 economists including 19 Nobel laureates called the plan an unmitigated disaster. So true, now the disaster is nigh.
Aside from keeping Trump’s boots in spit shine condition, Navarro has apparently been Trump’s main China whisperer as well as running around unilaterally declaring that the US is winning the trade war.
Other than finding demonizing China a lucrative profession, he does not have much else of a track record. Supposedly, to bring manufacturing back to America, Navarro has been tasked to import and recreate the many supply chains and put them back in the US. Want to bet if he can do it?
California winemakers, Iowa soybean farmers and Maine lobster fishermen are among many businesses wondering when and how winning this war is going to give them the business they used to enjoy with China.