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US-China showdown expected at the G-20 meeting this weekend

From left, China's President Xi Jinping and U.S. President Donald Trump shake hands on Nov. 9, 2017, during a meeting outside the Great Hall of the People in Beijing. Trump is isgnaling that he won't back down from his plan to escalate tariffs on China in January. (Artyom Ivanov/Tass/Abaca Press/TNS)
November 30, 2018

After months of growing friction and escalating tariffs, President Donald Trump will meet this weekend in Argentina with Chinese President Xi Jinping in a face-off that could prove pivotal not only for U.S. businesses and consumers, but also for the global economy and increasingly fragile international order.

The private dinner Saturday between the leaders of the world’s two largest economies is likely to overshadow the Group of 20 summit in Buenos Aires, which begins Friday, and will focus on such matters as sustainable development and work in the digital age.

Locator map of Buenos Aires, Argentina where G20 summit will be held this weekend.

Over the last year, the United States and China have exchanged volleys of punitive tariffs that now amount to a substantial tax on half of all Chinese imports to America, and most of American exports to China.

Unless China caves in to his demands, Trump is threatening to boost the tariffs and extend them to all Chinese imports, or more than $500 billion worth of products, raising the specter of a full-blown trade war between Beijing and Washington.

The meeting gives Trump and Xi a chance to pull back from the brink and declare a cease-fire while aides resume negotiations. It’s “an opportunity to turn a new page, break through,” Trump’s top economic adviser, Larry Kudlow, told reporters at the White House.

Both leaders have strong incentives to reduce tensions — for Trump, a likely bounce in wobbly stock markets and help in sustaining U.S. economic growth as he heads into his re-election campaign. But Kudlow put the onus on Xi to “come up with some new ideas.”

Few independent analysts expect Xi and Trump to come away from Buenos Aires with a substantive and lasting deal, however.

In part that’s because senior U.S. and Chinese officials have not met in weeks and the president sees significant and complex problems in the U.S. relationship with Beijing — a huge trade imbalance, unfair subsidies to Chinese businesses, pressure on U.S. companies to transfer sensitive technology to China to do business there, lack of U.S. market access in China, increasing government-sponsored cybertheft of intellectual properties, and so on.

Beyond these tough structural issues, Trump and Xi must contend with a growing mistrust on political and security concerns that predates the two strong-willed leaders, although Trump’s “America first” agenda and Xi’s Made in China 2025 blueprint to dominate key industries have sharpened tensions.

Some analysts foresee an inevitable clash between the world’s only superpower, and a rising challenger — with a state-run economy and one-party government — threatening to supplant it.

“On the U.S. end, China is a new phenomenon. Never has there been such a massive economic power with such a divergent set of economic rules,” said Claire Reade, senior counsel at Arnold & Porter and former assistant U.S. trade representative for China affairs.

“It’s all a major experiment right now,” she said referring to China’s competing economic and political model, and how the U.S. responds to it. “This meeting between Xi and Trump is a small test of how this experiment is going to proceed.”

For decades, official U.S. policy toward China focused on engagement, an effort to bring the once-isolated communist state into the global network of rules and standards. Under the Trump administration, that approach has shifted to direct competition on an array of issues, such as defense and justice, as well as trade and security.

The shift was unambiguously captured in a strident speech last month by Vice President Mike Pence, who accused Beijing of employing a “whole-of-government” approach to advance its economic and political goals at the expense of America.

Pence doubled down on his criticism of China this month at the Asia-Pacific Economic Cooperation summit in Papua New Guinea. His comments and Xi’s strong pushback contributed to a wider U.S.-China discord that resulted in the 21 Asia-Pacific leaders failing to agree on a joint statement for the first time in the group’s 29-year history.

The Buenos Aires summit marks a decade since the 20 largest economies, which represent 85 percent of the world’s total economic output, met in Washington and agreed to cooperate to help ease a global financial crisis. The stakes this year seem almost as high — assuming the G-20 survives the upheavals of the Trump era.

Raoul Leering, head of international trade at Dutch-based ING Economics, doesn’t see the U.S.-China trade fight being resolved in Argentina. That, he said, would be bad news for the rules-based World Trade Organization, the international arbiter of trade that Trump has threatened to withdraw from and is at risk of becoming irrelevant, like the G-20 itself.

Trump has railed against unfair trading partners for decades, including China, although he has praised Xi as a friend. It’s unclear whether Trump has worked through or approved clear policy positions for his meeting with Xi, making it difficult to predict the outcome.

Given Trump’s emphasis on personal relations with other leaders and his proclivity to surprise, he could strike a deal with Xi or simply declare victory, just as he did after an inconclusive nuclear summit in Singapore with North Korea’s Kim Jong Un.

“He’s going to walk into a room with Xi Jinping and do whatever he wants,” said Andy Rothman, a former economic officer at the U.S. Embassy in Beijing who is now an investment strategist for Matthews Asia in San Francisco.

Administration officials said Trump and Xi would talk over dinner after the conclusion of the two-day G-20 sessions. A dinner meeting could smooth the atmospherics and is likely to be welcomed by China as it shows respect for Chinese protocol, said David Loevinger, managing director at TCW Emerging Markets Group in Los Angeles and formerly a senior Treasury Department official for China affairs.

At the same time, he noted, the Trump administration has moved to broaden export controls affecting China and tighten Chinese investments in the U.S. — measures that are expected to continue regardless of any truce on trade.

A key question in Argentina is whether Trump will proceed with his plan to ratchet up tariffs on $200 billion of Chinese goods to 25 percent on Jan. 1, from the 10 percent initially assessed in September.

On Monday, Trump told The Wall Street Journal he was “highly unlikely” to back away from that plan, suggesting instead that the best Xi may be able to get is a moratorium on new tariffs on the remaining $267 billion of Chinese goods.

Chinese officials want a freeze in tariff increases, and analysts say that anything less could put the kibosh on negotiations and will disappoint American business interests. Many U.S. corporations count on overseas sales for their growth, and the tit-for-tat tariffs have cut into their profits and investments.

Reports from the Federal Reserve and other groups, including the American Chamber of Commerce in Shanghai, indicate the first round of U.S. tariffs announced in June, 25 percent on $50 billion of mostly intermediate Chinese goods, has disrupted supplies, curtailed investment decisions and raised prices for some customers.

Ratcheting up the tariffs to 25 percent on $200 billion more of Chinese merchandise “will be qualitatively different and significant,” said Kenneth Jarrett, president of the American Chamber of Commerce in Shanghai, which surveyed its members and found that 1 in 4 already have seen their profits fall by 10 percent or more as a result of the tariffs.

U.S. retailers and other businesses say American consumers should expect significant price increases on many household and ordinary goods — including vacuum cleaners, baseball gloves and frozen fish — if tariffs increase further. The price squeeze may hit when economic stimulus from tax cuts starts to wane and employers strain even more to hire new workers in a softer global economy.

“If the tariffs escalate to 25 percent and the U.S. adds more products while other factors are leading the economy to slow down, this could be a significant slowdown in 2019,” said David Dollar, a senior fellow at the nonpartisan Brookings Institution think tank who is a former Treasury Department economic and financial emissary to China. “There’s a good economic logic for making a deal.”

But influential figures in Trump’s administration, notably U.S. Trade Representative Robert Lighthizer, argue that the tariffs applied thus far are starting to hurt a Chinese economy already struggling with tight credit conditions and a weakening property market.

“The Chinese are nervous and there’s no need to rush into an agreement now. The longer we wait, the better,” said Scott Kennedy, a China expert at the nonpartisan Center for Strategic and International Studies, in explaining this thinking.

Lighthizer and other China hawks in the White House have ascended as of late, but their reports and speeches, including Pence’s scorching remarks, may not be as telling as in prior administrations. Traditional interagency debate and review have largely fallen by the wayside in the Trump administration, with most policy decisions coming only from the White House.

“Much of American foreign policy now depends on decisions only made by the president,” Kennedy said.


(Staff writer Jim Puzzanghera in Washington contributed to this report.)


© 2018 Los Angeles Times

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