US President Donald Trump came into office on a campaign promise to correct what he had perceived to be one-sided trade deals. He promised voters on the campaign trail that he would exercise his business acumen to great effect in the White House. Trump repeatedly said he would negotiate great deals that would benefit American workers and companies. He targeted countries like South Korea, Japan and China for running large trade surpluses with the US.
Fortunately, my country, Singapore, ran a large trade deficit with the US. Hence Singapore has been spared Trump’s wrath and avoided getting hit with tariffs that would have a devastating impact on the island state.
However, Trump’s trade war against China has unnerved global markets and is bound to have untold consequences for the entire world. The global trading system that we know of today was established by the United States after the end of World War II, and Washington has helped to build institutions such as World Trade Organization (WTO) and the World Bank to foster a rules-based trading system that has benefited the entire world.
Now the global trading system is under unprecedented assault and if this continues it is bound to have grievous global consequences.
Trump recently upped the ante in his trade war with China by escalating tariffs on US$200 billion worth of Chinese goods from 10% to 25%. While many pundits have said Trump is not in a rush to make a deal, the actions he has taken that the opposite is true.
Trump desperately needs a trade deal with China as he gears up for his re-election bid in 2020.
Trump desperately needs a trade deal with China as he gears up for his re-election bid in 2020
His gambit to conclude a deal with North Korea collapsed in failure in Hanoi in February, and it is a huge blow to his self-styled image of a master dealmaker. Trump also faces a flurry of congressional subpoenas at home from Democrats who now control the House of Representatives. Hence with mounting legal and political troubles, Trump is cornered and desperately needs a conclusion to the prolonged trade war with China, which has netted zero benefits for him.
The prospect of a trade deal with China remains as elusive as ever, despite Trump’s increased tariffs to pressure China to come to the negotiating table with the list of concession that he wants. It is highly unlikely that China will grant Trump the concessions he wants. China remembers clearly the deal that Tokyo concluded with Washington in the 1990s that caused Japan to slip into economic stagnation for many years. That period has now been dubbed Japan’s “lost decade.”
China is not dumb and it will not concede to Trump.
Worse still, the move to increase tariffs took place while Chinese Vice-Premier Liu He was in Washington to negotiate with the Trump administration.
It is a blunder by Trump and will be perceived by the Chinese as a cheap shot against President Xi Jinping. The tariffs hike came despite Xi’s “beautiful letter” to Trump, and it is a massive loss of face for the Chinese leader to see his group of officials return home from Washington with no deal to conclude the trade war.
Xi could not afford to look weak in front of his people and he knows that millions of Chinese netizens access information about the outside world by using virtual private networks (VPNs) to circumvent the Great Firewall. Many ordinary Chinese know about the trade war’s latest developments and should any deal with Trump infringe on China’s core interests, it will be political suicide for Xi.
One of the main reasons the US-China trade talks broke down was that Washington’s demands were unpalatable to China. Some of the demands from the US, such as an end to government support for state companies in specific industries and a streamlined approval process for genetically engineered US crops, are a direct challenge to the Communist Party of China’s control of the economy.
Since Xi took office, he has extended the party’s reach into every corner of Chinese society, and every businessman in China who aspires to reach the top of the hierarchy knows that they must receive the blessing of the party. It is not surprising that even Jack Ma, who is one of China’s most internationally recognizable figures, has been revealed to be a member of the CPC after years of denial.
Hence in the face of renewed pressure from Trump, Xi and the Chinese government have reached the conclusion that it is better to bear the consequences of increased tariffs than to concede to US demands.
Xi is in for the long haul and can well afford to ride out the storm. And based on Trump’s past negotiations such as his failed bid to pressure House Democrats to fund his wall on the Mexican border, which led to the longest government shutdown in US history, Xi knows that the chances are good that Trump will blink first.
As for Trump, the protracted trade war has hurt his base in the swing states that voted for him in 2016 over Hillary Clinton. There will be a point where the costs to American voters will be so great that the US political establishment will pressure Trump to change his approach on China.
Xi only has to harden his stance and not concede. Sooner or later, Trump will come back to the table and relax his demands.
It is only a matter of time before Trump will once again expose himself as a man of the art of no deal.