When Donald Trump arrives in Beijing this week for his summit with Xi Jinping, he’ll bring with him a long list of prospective deals he wants from China. Xi, playing a longer game, will probably be happy to oblige.
Trump will arrive at the summit in a much weaker position – and Xi in a stronger one – than he might have envisaged when the meeting, deferred for a month because of the war with Iran, was agreed to last October after the countries arranged a truce in their trade conflict.
His “Liberation Day” tariffs on the rest of the world have been struck out by the US Supreme Court and their temporary replacement, the 10 per cent baseline tariffs on the rest of the world, were deemed illegal by the US Court of International Trade last week. The administration could have to return up to $US200 billion ($276 billion) of tariff revenues.
The war in the Middle East hasn’t gone as planned, with the Strait of Hormuz still closed, threatening a global economic slowdown and forcing steep increases in US domestic gasoline and diesel prices.
Trump, who thought US economic and military might made him omnipotent, has been weakened by the failures of his trade and military adventurism.
Those misadventures have created distance and tensions between the US and other Western economies and leaders that that Joe Biden cultivated as allies in his “small yard, high fence” approach to maintaining America’s technological supremacy while constraining China’s efforts to challenge it. Relationships with both the US and China have been reconsidered.
When Trump meets Xi, he will be more of a supplicant than a potentate.
He wants China’s help to persuade Iran, China’s closest Middle Eastern ally, to re-open the strait.
He wants China to do a deal that ensure US access to the rare earths and other critical minerals that are vital to US industrial and technology companies. It was the threat to cut off access to those minerals that caused Trump to back down from his threat of 145 per cent tariffs on China’s exports to the US last year.
He wants China to agree to buy US soy beans and other agricultural products that, because of the trade war, it has been sourcing elsewhere, devastating US farmers and forcing the Trump administration into expensive compensation payments.
He wants China to agree to place a massive order for Boeing planes (a recurring theme in US trade negotiations).
In other words, a highly transactional president wants to announce he’s successfully negotiated a number of big transactions.
Xi is probably going to agree to all those deals, with some conditions.
China wants the US to halt arms sales to Taiwan, it wants access to more advanced US semiconductors, it may raise (probably fruitlessly) the issue of US market access for its auto industry, it will want some easing of the rafts of US sanctions on its companies, it will want an extension of the trade truce agreed last year and, perhaps, some lowering of the tariff rates. It would like the conflict with Iran, a major supplier of its oil, to end.
The far more evenly matched arsenals of trade weaponry makes it far more difficult for the US to use its economic heft to bludgeon China into trading on its terms.
Most of all, however, it will want some stability in the relationship with the US.
There is some common ground.
Both countries would like to avoid a contest and confrontation over artificial intelligence, even though both are competing for AI leadership. It is in both their interests to place some safety guardrails around the development of AI tools that could, in the wrong hands, pose frightening risks to either or both of them.
They would also like to create structures to regulate the less sensitive areas of trade and investment between their economies.
That’s where the concept of boards of trade and investment has emanated from, with a joint body that would manage non-sensitive trade (which might attract lower US tariffs and lowered barriers to entry to China) and adjudicate trade disputes.
That wouldn’t resolve the larger and more structural trade issues: US protectionism and Chinese mercantilism.
Trump isn’t going to abandon his misguided “America First” approach to trade and his conviction that US deficits signal that the US is being ripped off by its trade partners. He has a new set of (Section 301 of the Trade Act) tariffs on most of America’s trading partners due, in July, to replace those just declared unlawful.
Xi, with a domestic economy still struggling with the after-effects of the collapse of the property sector and substantial industrial over-capacity, can’t contemplate throttling China’s economic safety valve of export growth.
In April, China’s exports were 14 per cent higher than a year earlier and, with a monthly trade surplus of $US84.8 billion, the economy is on track to post another trillion dollar-plus trade surplus this year – despite Trump’s punitive tariffs rates. China’s growth is reliant on that tide of exports, despite the friction it generates with trade partners fearful of losing domestic jobs and, indeed, industries.
Trump, who thought US economic and military might made him omnipotent, has been weakened by the failures of his trade and military adventurism.
The war in the Middle East is pushing up the cost of energy and other commodities, like fertilisers, for China, but it was well-prepared, not necessarily for the US-Israeli conflict with Iran, but for any threatening external event.
It has built massive stockpiles of oil, gas, food and other commodities, in line with Xi’s near-obsessive pursuit of, if not absolute self-sufficiency, then insurance against external developments.
China was better prepared for the war than the US, where the administration thought its military power would end any Iranian response within days and render the Iranians powerless to threaten the strait. More than 70 days later….
While Trump might get to announce his deals and declare the summit a US success, it costs China little, if anything, to say it will buy US soy beans, or planes, and then renege on the agreement if the relationship sours.
A deal to buy Boeing’s planes (an order for 500 have been mooted), along with the other Boeing deals Trump has negotiated, also have to be seen in context.
Boeing’s production challenges have created a backlog of orders that currently total more than 6000 planes. Last year it produced 600. It could prioritise deliveries to China, but that would push others in the queue of orders even further towards the end of next decade without increasing production, deliveries or export income.
Trump could announce some big dollar numbers for sales of US planes to China, but there’d be no material near-term economic gain for the US economy.
Purchases of US soy beans might be more easily delivered, but China will never allow itself to become as dependent on the US for agricultural commodities as it was before Trump’s first term as president. It has helped develop alternate sources of supply, mainly from South America, including the infrastructure needed to transport and ship those exports.
When Trump made his first state visit to China, in 2017, he was feted because the US appeared to be the more powerful of the two nations and economies and China’s economy appeared more dependent on direct access to the US for its exports than has subsequently proven to be the case.
His initial trade war on China in 2018 forced China to strengthen its defences, which it has continued to do ever since, while trying to strengthen its relationship with those countries whose economies have been targeted by Trump’s second-term broadening of his trade war to the rest of the world.
Not only has it been prepared to wield its dominance of critical minerals as a trade weapon, but it has developed a raft of new domestic national security laws that give it the ability to block transactions, target foreign companies operating within its economy and, most recently, sue in Chinese courts any entity – from banks and insurers to shipowners – that complies with US sanctions on Chinese companies or individuals.
The far more evenly matched arsenals of trade weaponry makes it far more difficult for the US to use its economic heft to bludgeon China into trading on its terms.
That’s why the US gains from the summit are likely to be some relatively modest and strategically irrelevant deals to sell some commodities and planes to China while the broader relationship generally reflects an uneasy, but more balanced, maintenance of the status quo. For the rest of the world, that would still be better than the alternative.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
Stephen Bartholomeusz is one of Australia’s most respected business journalists. He was most recently co-founder and associate editor of the Business Spectator website and an associate editor and senior columnist at The Australian.Connect via email.
