At 2.50am on March 2 this year Trump tweeted that “trade wars are good and easy to win.” As President Xi travelled home from the G20 summit in Osaka, Japan, last weekend he could well have been smiling gently and humming to himself: “Yes indeed. Yes indeed.”

For at the end of the 80-minute meeting between the two leaders on the fringes of the summit, Trump had made major concessions to Xi, deflecting the gathering trade war between the world’s top two economies. Meanwhile, the Chinese president offered nothing except the promise to buy more agricultural produce from hard-pressed United States farmers.

A well-established Trump behavior pattern is to swiftly dream up some dramatic diversion when he realizes he has just made an utter fool of himself, been outsmarted, is about to be confronted with unconscionable past behavior, or has told a monumental lie.

DMZ diversion

After the Xi meeting, Trump’s diversionary tactic was his tweet inviting North Korean leader Kim Jung Un to meet him “just to shake hands and say Hello” at the demilitarized zone dividing the peninsula.

It worked a treat, as it usually has for Trump. Public attention swiftly swung from the grey text of the meeting with Xi to the jolly, but essentially meaningless photo op of two tubby men in badly fitting suits and the world’s worst haircuts performing a kafkaesque pas de deux against the backdrop of one of the most hauntingly awful temples of the Cold War.

But the Panmunjom charivari is over and the fall-out from the Trump-Xi meeting remains.

North Korea’s leader Kim Jong Un and US President Donald Trump walk together in the Demilitarized Zone that divides North and South Korea on June 30, 2019. Photo: AFP

The two leaders went into the meeting with Trump having pointed at China as the prime culprit for US economic, trade and manufacturing malaise from the start of his regime’s tenure.

He used executive power to slap on a 25% levy on Chinese imports, worth about $250 billion annually, and was threatening to impose another $300 billion annually.

Trump had also taken aim at Huawei Technologies, China’s premier communications technology company that is poised to dominate the world market in 5G technology.

In May, Trump issued another executive order prohibiting US companies from trading with Huawei when the company’s license with the US Commerce Department expires in August.

Lurking behind this is the belief by US security agencies that Huawei equipment can be used by Beijing’s espionage agencies for spying and is a threat to American national security. Washington has indicated to its main intelligence partners – the United Kingdom, Canada, Australia and New Zealand – they must not allow Huawei equipment to be used in their national communications networks if they want that alliance to continue. Australia and New Zealand have agreed. Canada and the UK are dithering.

Xi’s main response to the Trump embargoes has been to cut the importation of US agricultural produce, knowing that this comes mostly from the states that voted for Trump in 2016 and whose loyalty he must retain if he is to be re-elected next year.

Ignorance

Beijing can also take heart in its knowledge of Trump’s ignorance about economics, and that it is American consumers, not Chinese producers, who are paying the $250 billion import duties on Chinese goods. The average American household is paying $831 this year for Trump’s tariffs, and farm foreclosures have spiked across the Midwest despite Trump’s “trade aid” package of $28 billion in subsidies.

Trump also started the meeting with Xi with fire-breathing China hawks like Peter Navarro at his shoulder. Navarro and others see the confrontation with Beijing as much more than a trade war. It is the opening round in a slugging match to see who is going to be the dominant global superpower in the coming decades.

To that end, Trump’s centurions want to use the trade negotiations to knock out some of the key underpinnings of the Chinese Communist Party one-party state. They are demanding an end to Beijing’s system of state-guided capitalism. This favors state-owned enterprises, severely limits market access to foreigners, regards all foreign intellectual property as legitimate targets for theft, and sees all demands for regulatory transparency as an unacceptable intrusion into China’s domestic affairs.

Trump caved on everything in his meeting with Xi.

The additional $300 billion in tariffs will not be imposed because Xi agreed to resume trade negotiations, the latest round of which broke down two months ago.

The Chinese president also agreed to import more agricultural produce from the US. This will help Trump tell voters he has fulfilled his 2016 campaign promise to reduce the trade deficit. But it will be hard for him to disguise the fact that in spite of his trade war on China, the overall US trade deficit has risen from $552 billion in 2017 to $621 billion last year.

And US soybean farmers, the main target of Xi’s retaliatory tariffs, are unlikely to ever reclaim all the chunk of the Chinese market they have lost. Chinese buyers have already made other arrangements with growers in Eastern Europe and South America.

Backtracked on Huawei

Perhaps the most symbolic capitulation was Trump’s agreement to walk back his threats against Huawei. Apparently, under pressure from lobbyists for US telecom technology manufacturers, Trump said they can sell their components to Huawei “where there is no great national emergency problem with it.”

Trump’s backtracking on Huawei brought outraged reactions from Congress, including from Republican senators Marco Rubio and Lindsey Graham, who accused him of bargaining away national security in the interests of trade.

The rollback on Huawei is music for Xi, whose regime sees the company as the flag carrier for its “Made in China 2025” vision. This sees China becoming the dominant global technology power by the middle of the next decade.

Many countries which were attracted to Huawei’s networking technology because of its competitive prices, but who were reticent because of the security warnings from Washington, will take Trump’s backtracking as a go-ahead.

Even so, Xi has to steer China through difficult economic times, with growth rates falling and many foreign investors moving their production facilities to other parts of Asia and to Africa, where costs are lower.

The Chinese president avoided further disruption by agreeing to increase purchases of US agricultural products, and to resume formal trade negotiations. With these minor concessions Xi was able to divert Trump’s attention from the US hawks’ demands that Beijing reconstruct its economy from the ground up, and in a way that would threaten the survival in power of the Chinese Communist Party.

Those demands may come up again when the negotiations resume. But for Xi negotiations are a vehicle for delay, and delay for Xi is victory.

 

Jonathan.manthorpe@gmail.com