Why the US-China trade deal will remain ineffectual

Why the US-China trade deal will remain ineffectual

The broader strategic issues driving competition between the two powers will remain unaddressed.

WHAT’S HAPPENING?

A trade deal between the US and China is likely to be limited in reach, with their broader strategic competition largely unaddressed.

KEY INSIGHTS

– A trade deal between the US and China is likely to be limited in reach, with their broader strategic competition largely unaddressed
– The US-China relationship is ripe for misperception and miscalculation
– Despite Trump extending his self-imposed tariff deadline, his unpredictable nature means Washington is unlikely to reset its relationship with Beijing to its 2016 status

GETTING CHINA WRONG

Since late 2017, US policymakers have begun revising their perception of China as a revisionist threat. However, these changes do not represent a significant break in US policy as the ‘China threat’ discourse has been “felt in earlier administrations and iterations of Congress.” The difference between the current and previous administrations is the degree of self-restraint exercised by leaders disillusioned with Beijing’s hostile activities at home and abroad, as well as those who have sought to capitalise on the disillusionment. Thus, despite a multitude of disagreements with Congress on domestic and international issues, US President Donald Trump has aligned with the legislature on the need to act tough on China.

Yet US policymakers may have gotten China’s rise wrong. The notion that US engagement with China has failed reflects unfounded critiques that create misplaced expectations about China’s rise. It omits several decades of positive Chinese contributions to international affairs as well as recent concessions made to the US on North Korea and trade.

Previous engagement strategies were also not naïve. The policies were “grounded in modest expectations for gradual reforms, not rosy hopes for imminent Chinese democratization.” Most importantly, China’s rise is threatening to the US not because China might one day become a competing superpower bent on revising the world with its own image — a scenario that remains contested — but because the US can no longer hope to preserve its global hegemony unchallenged. Washington will need to accommodate Beijing on sensitive and structural issues where Beijing will not readily make concessions.

THE FAILURE OF ACCOMMODATION

President Donald Trump and First Lady Melania Trump pose for a photo with Chinese President Xi Jingping and his wife, Mrs. Peng Liyuan / US-China trade deal

Photo: D. Myles Cullen / The White House

However, accommodation is a significant undertaking to which the US is unlikely to commit. The current trade war and negotiation demonstrate that the US is not willing to compromise in key areas that have sustained its global pre-eminence. Instead, Washington wants Beijing to concede in ways that contribute to the continuing status quo of the US-led order. As the most recent example, Washington is looking at enforcing multiple memorandums of understanding to address Beijing’s discriminatory economic practices that it fears might undermine US economic and technological leadership.

A negotiating tactic with such an agenda will make it difficult for China to accept. Although Beijing has been willing to compromise on agriculture, energy and currency, it is unlikely to agree to full domestic structural reforms in areas that are critical to its continued rise, such as subsidies for state-owned enterprises, cyber-theft and forced technological transfer. Challenges still remain despite China’s new draft legislature for intellectual property sharing.

Conversely, the US is unwilling to commit fully to any trade deal that does not leave room for future negotiations. And while Trump has stated his desire for “fair competition” in 5G and has refused to “artificially block people out based on excuses or based on security,” this is unlikely to be reinforced. He will need two-third Congress support to amend the 2019 National Defence Authorisation Act’s stringent measures against China’s cybersecurity operations in the US. This suggests that Washington’s approach to Beijing is likely to remain zero-sum rather than accommodative.

Failure to reach a consensus does not mean that the US and China are ‘destined for war’. Both countries have mutual interests in not escalating tensions into a full-fledged conflict: the extraordinary interconnectedness of their economies, the risk of nuclear escalation, the ‘stopping power of water’ as a firebreak in their maritime confrontation, and common interests in addressing indivisible global challenges. But their resistance to accommodating each other’s needs means that any prospect for peace is likely to be hotly contested and their relations unlikely to remain tranquil. At such times, both parties cannot be complacent that they can simply ‘manage’ their relationship. A domestic consensus that views the other as an ideological and revisionist threat, a mismatch of culture in strategic communication, and recent setbacks in bilateral dialogues could poison their perceptions and fail to imbue a sense of urgency to reciprocate. Conditions thus remain ripe for inadvertence and miscalculation.

THE WILD CARD

While both parties have been building confidence through negotiation, optimism surrounding a potential trade deal has depended on an opportunist US president bent on leveraging the negotiation for domestic popularity. In preparing for his re-election campaign later this year, Trump will want to claim a triumphant victory in the trade war with China. This is evident in the manner he proposed the deal: although the ‘Memorandum of Understanding’ was binding, Trump did not like the term “because they don’t mean anything” and has replaced it with ‘trade agreement’. Such a change has no substantial impact except for political optics. ‘Substantial’ or ‘tremendous progress’ has also become Trump’s favourite phrase when assessing his performance (be it on Syria, North Korea or China), the extent of which has been disputable. Trump has made similar remarks for the trade negotiation and now extended his self-imposed deadline and proposed another one-on-one meeting with Chinese President Xi Jinping at Mar-a-Lago.

Despite the ‘progress’, the outcome is likely to remain an interim deal in which neither side imposes new tariffs or fully lifts them. As for the personal meeting, the 2017 Mar-a-Lago summit started promisingly but ended with the trade war. It is more likely that a 2019 meeting will reinforce Trump’s strongman persona in an era of geopolitical disorder than resolving any intrinsic issues between the world’s two largest economies. If the negotiation fails to produce an outcome to his liking, expect Trump to resume the trade war to demonstrate to his domestic audience that he has once again stood up to China. It is thus unlikely that the US-China relationship can simply revert to its 2016 status.

FUNDAMENTAL DIFFERENCES

/ US-China trade deal

With Trump embroiled in domestic political turmoil, there is no guarantee that he can survive the next election. A new president may learn from the disruption that Trump’s protectionist policies have caused to the domestic economy and US international standing, and be more conservative in their approach to the question of preserving US hegemony, managing China’s rise, and lifting the competitiveness of the US economy.

Even with a change in US leadership, Washington’s broader strategic competition with Beijing is likely to remain unaddressed. The current negotiation omits critical geopolitical issues relevant to their competing interests in the Indo-Pacific region. While both sides are approaching an economic deal, tensions in the South China Sea, the contest for regional leadership, rule-making and infrastructure, and their ideological discord — concerning China’s digital ‘Orweillian’ control, repression in Xinjiang and use of ‘sharp power’ against Western democracies — have become more confrontational. These broader issues underscore fundamental differences in their worldviews and especially China’s discontent with the US-led post-war order and the search for its ‘rightful place’ in history.

In an era of geopolitical transition, the fundamental differences that have been reawakened are likely to be felt more widely as the two largest powers contest within an increasingly tight constraint of strategic space.