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Speak
softly and … Illustration: David Simonds/Observer. Image source: The Guardian UK
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The leaders shared steak
in Florida, but the stakes in trade talks are much higher for China, which
would struggle to find a better export market
Forget the warm handshake. Take with a pinch of salt Donald Trump’s talk of his “very,
very, great relationship” with Xi Jinping. The idea that Washington has ceased
to harbour deep suspicions of Beijing just because the presidents of the
world’s two biggest economies shared pleasantries over steak in Florida is
fanciful.
The
Guardian UK report continues:
Xi
will certainly be hoping Trump’s cordial welcome was for real, because China
has much more to lose economically from a trade war than America does. This
might sound counter-intuitive given that Beijing can deploy the economic
nuclear option if Trump makes good on his campaign pledge to slap whopping
tariffs on Chinese imports. The US owes China more than US$1 trillion and Xi
could send America’s economy into a tailspin by sanctioning a dumping of US
Treasury bonds.
But
the problem with nuclear missiles is that they are never really intended to be
fired, and if they are, there are no winners. Sure, China could cause enormous
damage to the US, but only by damaging itself.
Indeed,
the US-China relationship is a classic example of the old saw: if you owe the
bank a thousand dollars, you have a problem; if you owe the bank a trillion
dollars, the bank has a problem. Trump holds the important cards and it is
simply a case of whether he wants to play them.
As
Brian Davidson of the US’s Fathom consultancy has pointed out, the Chinese
leadership is keen to avoid the social and political unrest a trade war with
the US would inevitably bring. Beijing’s willingness to pump the economy full
of credit to finance unprofitable investment demonstrates its determination to
avoid a sharp rise in unemployment.
China
depends on the US in a way the US does not depend on China. Nearly 4% of
China’s GDP comes directly from exports to the US, while the equivalent figure
for the US is less than 1%. There are several other countries that could
provide the US with the manufactured goods it gets from China, but China would
have real trouble finding an alternative to the US as an export market.
Trump
has expressed in blunt, often bellicose, terms his unhappiness with the way
China conducts its trade, but according to Davidson he has a point. “The US
position in these trade negotiations is strengthened by international trade
law, and by China’s systematic violation of obligations under World Trade Organization
rules. The US has scope to open, and win, lawsuits against China at the WTO, a point not lost on both
leaders.”
Xi
clearly hopes that Trump can be talked down from the aggressively anti-Beijing
stance he adopted on the campaign trail, and arrived for his talks armed with a
few vague promises about future Chinese investment in the US. This is not going
to be enough to satisfy Trump, who has made action on America’s US$350bn a year
trade deficit with China a touchstone of his presidency. It was a coincidence
that the Florida tête-à-tête took place on the night the White House
launched airstrikes on Syria, but the message will not have been lost on the
Chinese president: Trump’s impetuosity makes him hard to read.
Beijing
has been left guessing about what it will actually take to stop Trump slapping
a 45% tariff on all Chinese exports. The answer is that it will probably
require Xi to remove the barriers that make it hard for hi-tech US companies to
export to China. Even then, there is likely to be some US protectionism in
sectors – such as steel – that are politically sensitive in the rust-belt
states that carried Trump to victory.
There
will be less talk in the months ahead of China“raping” the US, but that simply means the current occupant of 1600
Pennsylvania Avenue has learned from one of his predecessors, Teddy Roosevelt,
to speak softly and carry a big stick.
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