Donald Trump’s antics may work with Elon Musk, but not with China

You can't have two kings in one kingdom. The relationship between two men with such strong egos won’t last very long.

When asked in February what would happen to Elon Musk and Donald Trump, I answered that way. Four months later, Musk left the administration as expected. Although he said he is somewhat regretful, it seems too late to repair the relationship at this point.

The recent verbal sparring between these two grown men — the leader of the world’s No. 1 superpower and the richest man on Earth — was downright juvenile. Musk called Trump's recent tax and spending bill "outrageous” and a “disgusting abomination," adding that it would only increase the national debt, and asserted that the president wouldn't have won the last election without his help. He proceeded to repost a call for Trump's impeachment, floated the idea of forming a new political party representing “80% of the middle class and claimed that Trump's tariff policies would trigger a U.S. recession in the second half of the year.

In response, Trump said Musk had been “wearing thin,” and “asked him to leave,” adding “he just went CRAZY!”

While the leader of the world’s biggest superpower and the richest person were at it with each other, a surprising trade negotiation was taking place in London.

“Our deal with China is done. ... Relationship is great,” Trump posted on social media, adding, “subject to final approval with President Xi and me.” Details of the agreement are unclear, but according to media reports, the Cabinet-level talks in London resulted in an agreement in principle on a “framework” for implementing the agreement reached in Geneva in May.

China reportedly would ease restrictions on exports of rare earths. The U.S. secretary of commerce expressed optimism that the issue of China's rare-earth exports would be resolved, while China has only indicated that it will approve some rare-earth exports and “continue to facilitate the approval of applications that comply with regulations.” Although this agreement may sound like a concession by China to supply rare earths to American companies, one can’t help but to be very skeptical.

Then there’s the visa issue involving Chinese students. Under the agreement, the U.S. will reportedly allow Chinese students to continue attending U.S. universities. This may be a concession by the U.S., but it is not a significant one. In the first place, are the lifting of restrictions on rare-earth exports and on visas for Chinese students really equivalent concessions?

In negotiations of this kind, it is more important to analyze what was not agreed upon than what was. The first remaining issue is the dispute over technology. Friction reignited when the U.S. issued guidelines on the export of AI chips and stopped selling chip design software to China. Although both the U.S. and China will likely relax restrictions on the export of high-tech products to some extent, this will not be a complete solution. This is because the U.S. still has national security concerns, particularly regarding semiconductors.

While tariffs between the U.S. and China were significantly reduced under the May agreement, existing tariffs on steel and aluminum remain in place and there is no prospect of resolving the structural issues in U.S.-China trade that the American side is seeking, such as China's unfair trade practices, excess production capacity, re-exports (via third countries), the fentanyl issue and so on. U.S.-China trade negotiations are likely to continue for a long time, probably for years to come.

It is no surprise that many in the market are increasingly mocking Trump as “TACO” (Trump always chickens out). However, since the market operates based on economic rationality, there is still room for improvement in relations. The real challenge lies in negotiations with Russia, China and Iran, all of which act according to more complicated strategic rationales.

Based on my experience as a diplomat for 27 years, I say “Don’t bluff, if you’re going to chicken out in the end.” Trump’s tactics may work against Elon Musk given that his administration has leverage over Musk’s critical business activities. But with China, it does not. I do not consider it an effective diplomatic approach to persuade the battle-hardened leaders in Beijing.

Two major issues arise. The first is that China has realized that rare earths are a more effective leverage than they had expected. China will not give this leverage away. The second is that Trump's tactics and methods, which he boasts are those of a master negotiator, have once again proven to be crude and lacking in strategic thinking.

So what should Japan do? Ideally, Japan must work with like-minded countries other than the U.S. and China, as it did when it created the TPP-11 agreement (currently the Comprehensive and Progressive Agreement for Trans-Pacific Partnership), to establish new trade rules. However, now that the existing framework has been completely dismantled, the good old days are over.

Japan has no choice but to embark on a voyage without a compass and a map and, of course, without the U.S. taking the lead.