Will Trump get a US-China grand bargain or just a trade war?

Will Trump get a US-China grand bargain or just a trade war?

This week has seen the worsening of worries over a US-China trade war. With Washington poised to impose tariffs on some $34 billion of Chinese goods next month, it emerged on Monday that the Trump team is also considering placing new restrictions on Chinese ownership of “industrially significant technology” firms in the US, and enhanced export controls on technologies shipped to China.

Given the massive stakes in play, this latest bout of turmoil has the potential to severely disrupt what is probably the world’s most important economic and political bilateral relationship. Given the remarkable rise of China as a nascent superpower in recent decades, use of the term “G-2” has arisen in global politics to signify an emerging relationship between Beijing and Washington.  

Growing bilateral cooperation is possible if the two powers can increasingly find ways to resolve hard power disagreements, including South China Sea territorial claims, while cooperating on soft issues like climate change. By contrast, bilateral rivalry is possible if Beijing’s military power continues to grow rapidly and the country embraces a more assertive foreign policy toward its neighbors in Asia, and economic ties sour significantly. 

On the latter issue, while a full blown US-China trade war is still not inevitable, prospects will increase significantly if the threatened tariffs are imposed. As the US-China conflict over trade has intensified, Beijing has increasingly sought to align itself with Brussels, given that the EU is also currently in dispute with the White House on this economic front. On Monday in Beijing, Chinese Vice-Premier Liu He and European Commission Vice-President Jyrki Katainen vowed to oppose US trade protectionism, asserting that unilateral actions risked pushing the global economy into recession.

During Barack Obama’s presidency, the fact that bilateral relations remained generally cordial reflected, in significant part, the personal commitment of Obama and Xi to stability

Andrew Hammond

With economic angst growing between Beijing and Washington, Trump is again placing great emphasis on his personal skills of negotiation to resolve these issues. On Saturday, he asserted that “we have started the process and I think that will work out with China because we have a very good relationship with President Xi Jinping. He is incredible.” Yet, despite Trump’s optimism, it is by no means certain that Beijing will play ball with Washington. And this despite the current upswing in ties between the two superpowers, which has seen significant cooperation on North Korea, for instance, lead to the Singapore summit earlier this month between the US president and Kim Jong Un.

Underneath this apparent success of US and Chinese diplomacy, bilateral ties remain mixed and it is unclear how much personal chemistry Trump and Xi have. This is relevant as, while economic and security fundamentals will largely determine the course of the relationship in the coming years, personal warmth between the two leaders — or an absence thereof — could also be key. During Barack Obama’s presidency, the fact that bilateral relations remained generally cordial reflected, in significant part, the personal commitment of Obama and Xi to stability.
 
Xi has outlined his desire to fundamentally redevelop a new type of great power relationship with the US to avoid the conflictual great power patterns of the past. This is an audacious goal, which still lacks any obvious definition, and it is not certain how long the pledge will remain in place given the frequent bellicosity of Trump to China.
 
While Trump is quite often warm in his rhetoric toward Xi personally, it is clear that he genuinely believes China is a major threat to the US. This is not only true on the economic front, but also the security domain too: Much of the US president’s anti-Beijing rhetoric appears to be based on a conviction that China represents the primary threat to US interests globally.

Outside of North Korea, a string of security issues still cloud the bilateral agenda, including the South China Sea, and US Defense Secretary James Mattis will raise these issues in his first trip to China this week. This topic frequently brings frustrations for both sides and, last year, even the comparatively mild-mannered former US Secretary of State Rex Tillerson said Beijing should “not be allowed access” to its new artificial islands — a sensitive comment given China’s animus toward US sea and air maneuvers near its borders. 

Yet it is economic disputes that are currently at the fore of the bilateral relationship. On Saturday, whilst praising Xi, Trump asserted that “China… has been very tough on our country…We probably lost last year $500 billion in trade to China. Think of it: 500 billion.”

It is this narrative that Trump has repeated many times since the 2016 US election. As well as his concerns about trade deficits and purported resulting job losses, he has repeatedly called Beijing “grand champions of currency manipulation,” asserting that China is keeping its exchange rate artificially low in order to secure export advantage.
 
On the face of it, therefore, rising tensions between Beijing and Washington appear very likely in the coming weeks. Yet, such is the mercurial nature of Trump, it remains genuinely unclear how far he will up the ante with Xi. 
 
However, whether a more diplomatic or bellicose Trump predominates in the short term, he knows he ultimately needs to show his US political base some concessions from China on these issues to fulfill his “America first” agenda. Here he has previously asserted that “everything is under negotiation” and what he ideally favors — building on the recent diplomacy with Xi over North Korea — is a wider grand bargain with Beijing extending beyond the economics arena to include security issues too. 

If such a big deal can be pulled off, it would potentially provide for greater overall stability in the world economy and limit damage to the currently creaking international trade system, which risks being undermined further by a major US-China spat. An agreement of this kind could also have a broader positive effect on international relations, given the breadth of political and security issues on which Washington is currently engaged with Beijing, helping underpin a renewed basis for bilateral relations under the Trump presidency into the 2020s.
  • Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics
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