Media Foreign Affairs and National Security 2019.05.15
On Sunday, U.S. President Donald Trump warned Beijing that if there is no trade deal with China this week, the 10 percent tariff on $200 billion worth of imports from China would go up to 25 percent on Friday and that a 25 percent tariff would be imposed "shortly" on $325 billion additional goods, tweeting, "The Trade Deal with China continues, but too slowly."
Trump tweeted this just a few days after U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin returned from a brief trip to Beijing. It was also just a few days before the Chinese negotiating team, led by Vice Premier Liu He, would visit Washington leading a delegation of more than 100 officials.
China immediately reacted. The Wall Street Journal reported Monday that China is considering canceling Li He's planned trip, reportedly because "Beijing was surprised" by Trump's tweets and "doesn't want to negotiate under threat." Seen from Tokyo, I say Trump and Xi will have to pay their own prices!
Will Liu go to Washington as scheduled? As of Monday night when I wrote this, I strongly doubted it. Was Trump's threat an effective negotiating tactics to win additional concessions from China? Hardly. Can the U.S. and China make a trade deal in the near future? Probably not.
According to The New York Times, a possible U.S.-China trade deal could include:
Each one of them, however, is easy to talk about but very difficult to implement. In addition, there still remain a number of sticking points such as China's industrial policy, including subsidies to its industries at the provincial and local level or issues related to intellectual property, including control over big data obtained in China.
Putting details of those sticking points aside, I found that this so-called final phase or end game of U.S.-China trade negotiations is almost structurally destined to drag on, if not fail, for a much longer a period of time than people in the markets might have expected or even dreamed of. The following are the reasons why:
1. Trump's overconfidence in leverage
In his notorious book titled "The Art of the Deal," Trump wrote, "The best thing you can do is deal from strength, and leverage is the biggest strength you can have. Leverage is having something the other guy wants. Or better yet, needs. Or best of all, simply can't do without." Does Trump really have leverage over China? He might have been just emboldened by the recent strong showing of the U.S. economy. Or he only wanted to avoid criticism from Congress to not fall into the typical Chinese trap of signing a meaningless deal. In any case, Trump seems to have underestimated Beijing.
2. China's "face-saving" operation
Beijing might have interpreted Trump's last-minute threat to China as something to force the Chinese top negotiators and, indirectly, their boss, President Xi Jinping, to "lose face" in Washington. For the Chinese elites, losing face means revealing their weakness in public in a way that will painfully damage their reputation and dignity. Liu might have expected that he could finalize a trade agreement this week in Washington. If so, the Chinese leaders' mindset is simple. They don't want to lose face vis-a-vis their rival. It would be a nightmare for them to see a U.S. president walk out of the negotiating table as Trump did to North Korean leader Kim Jong Un in Hanoi.
To avoid such a surprise, Chinese negotiators always try to conclude a deal in advance by fixing every word they use in a document so that the two presidents sign it in a ceremonial photo opportunity. Trump's tweet, intentionally or unintentionally, had Beijing believe it would lose face in the final phase of the negotiations.
3. No good cops versus bad cops
Some pundits refers to internal policy disputes inside the Trump administration. They say, as The New York Times reported, "While Mr. Mnuchin was optimistic, Mr. Lighthizer, the top trade negotiator and a longtime critic of China's economic practices, insisted the deal was not yet good enough." I do not buy such a shallow analysis.
There are neither good cops nor bad cops in the Trump administration. While advisers like White House assistant Peter Navaro or National Security Adviser John Bolton insist that no deal is better than a bad deal, negotiators like Mnuchin or Lighthizer naturally wish to conclude a concrete product. This doesn't mean that the former are bad cops and the latter are good.
While their styles may differ, they are unanimous in that China has to either change its authoritarian governance or be punished for its unfair policies of state capitalism. The only difference is that some are more focused on the U.S. and the international economy, while others more interested in U.S. national security.
The U.S.-China trade disputes will continue for the foreseeable future, no matter what limited, tentative or superficial a compromise deal may be reached in the short run. As long as Washington and Beijing misread each other, Trump's personal "art of the deal" will not work against a country like China with 3,000 years of human history.