China, Like The Rest Of Humanity, Knows It’s Impossible To Strike A Long-Term Deal With Donald Trump

China, Like The Rest Of Humanity, Knows It’s Impossible To Strike A Long-Term Deal With Donald Trump

Like the rest of humanity, China has grave doubts about whether it’s possible to strike a long-term, comprehensive trade agreement with Donald Trump.

Even as officials in Washington and Beijing rush to finalize the details around a “Phase One” deal that, until Wednesday, was expected to be signed by Trump and Xi at APEC in Chile, some on the Chinese side are privately cautioning that the kind of sweeping deal envisioned by the US president isn’t feasible.

That’s according to sources who spoke to Bloomberg. Part of the problem is simply that the US doesn’t seem to understand how committed China really is to taking a hardline stance on some of the “thorny” issues at the heart of the dispute. For example, Beijing isn’t likely to budge when it comes to preserving wide latitude on state-owned enterprises. As Bloomberg puts it, China has “has balked at reforms… that could jeopardize the Communist Party’s grip on power”.


Although China is said to be more than willing to keep talking once the “Phase One” deal is complete, a condition for continued engagement is the removal of tariffs. As the chart shows, the Trump administration is on pace to implement everything the president threatened. Although Trump canceled the October 15 escalation, he has never removed existing tariffs and so far, there is no definitive indication that the scheduled December escalation (15% duties on some $160 billion in Chinese goods) will be taken off the table.

Bob Lighthizer has long contended that the initial tariffs should act as a kind of Sword of Damocles. His team, Bloomberg notes, has “been adamant that the duties on $250 billion in Chinese goods be maintained over the long term as a way to enforce any commitments China makes”.

That won’t work for the Chinese. It will be politically impossible for Xi to keep striking deals with Trump in the absence of meaningful tariff relief.

It is still unclear what the White House got in the “Phase One” handshake agreement with Chinese Vice Premier Liu He. There was an apparent commitment for China to ramp up purchases of US farm goods, but as documented here extensively, even that may be contingent on tariff relief. As it stands, Beijing is said to have agreed to ramp purchases to $20 billion annually, but that only gets us back to where things were prior to the trade war.

Obviously, the Trump administration’s willingness to change strategy and accept interim agreements is in part a tacit acknowledgement of the notion that it may not be possible to compel the Chinese to make some of the structural changes demanded by Trump’s trade hawks.

Larry Kudlow this month attempted to justify the change in strategy. “We are both sides now recognizing that it may not be necessary to do everything all at once”, Kudlow said at an event in Washington last week. “What’s not done in Phase One can spill over into a Phase Two and conceivably a Phase Three”.

In their Thursday reporting, Bloomberg goes on to say that contrary to Trump’s cartoonish characterization of the October discussions as a “love fest”, people close to the talks said “the sides were still debating how to apportion issues between phases and what to announce just minutes before reporters were let in for the announcement”.

In the end, there is only one sure path to a comprehensive deal: Removing the tariffs and letting China slide on key issues, likely including SOE policy. Further, it seems highly unlikely that Beijing will acquiesce over the long term to the current pressure campaign that seeks to curtail China’s rise as a leader in global tech.

Finally, note that this whole situation is made immeasurably more vexing by Trump’s penchant for losing his cool. “[Chinese officials]  remain concerned about Trump’s impulsive nature and the risk he may back out of even the limited deal both sides say they want to sign in the coming weeks”, Bloomberg says.

Again, that just means that China is no different from the rest of humanity – they are dubious at the prospect of trusting Donald Trump, a man whose mythology is constructed atop a largely fictitious narrative that spins decades of business failures as successes.


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