Donald Trump and Xi Jinping Have Brokered Peace. It Will Be Sorely Tested

Op-Ed in The Guardian

U.S.-China Dinner Meeting at 2018 G20 Summit

U.S. President Donald Trump, U.S. Secretary of State Mike Pompeo, and members of their delegation hold a dinner meeting with China's President Xi Jinping, China's Foreign Affairs Minister Wang Yi, and Chinese government representatives at the end of the G20 Leaders' Summit in Buenos Aires, on December 01, 2018. (Saul Loeb/AFP/Getty Images)

The following is an excerpt of an op-ed first published in The Guardian.

What Donald Trump and Xi Jinping did in Buenos Aires was buy time. Three months, in fact. Which is good when measured against the alternative: which was a full-blown trade and broader economic war between the two countries. Which in turn had the potential to trigger a further collapse in global market sentiment, particularly coming on the back of other negative trends emerging in both the U.S. and Chinese domestic economies.

But a word of caution to markets, even from those of us who have been arguing publicly that on balance a deal of some sort between China and the U.S. was more probable than not: one swallow doth not a summer make. Much can still unravel. Both Trump and Xi have indeed bought valuable, though limited, time for themselves and the world. But for different reasons.

There are five complex baskets of policy disagreements to work through. First, the current annual $370bn bilateral trade deficit needs to be reduced. Major Chinese purchases of American natural gas will account for much of this, and probably at the expense of Qatar and Australia, both U.S. allies. Trump also stressed that China would begin to purchase more agricultural products, though what exactly this will entail is unclear.

Then there are the possible cuts to tariff rates themselves. The Chinese average tariff rate currently stands at about 9.8% compared with a U.S. average tariff rate of 3.4%. Then there are those industry sectors that are most politically sensitive in each economy, led by agriculture: Republican-voting farmers in the U.S., matched by China’s historical paranoia over national grain self-sufficiency.

One radical solution from China might be to propose a phased but quick reduction of average tariff rates to zero (or as close to zero as you can get). That would capture global market sentiment big time by rowing back the current tide of global protectionism, putting flesh on the bones of Xi’s Davos declaration in January 2017 as the champion of free trade.

Then there are the three hardy perennials: intellectual property protection; forced technology transfer (a U.S. term), and the use of the full resources of the Chinese state to support China’s stated national industrial strategy (Made in China 2025) to dominate global advanced technology markets and product standards by 2030. These three are the really ugly ones.

Read the full article.

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