President Trump seems to delight in keeping others off balance. When it comes to trade issues, his administration has certainly been doing that with China. Whether this induced befuddlement will serve Washington well remains to be seen.

Imagine how this all must look from Beijing. One surprise in the wake of last year’s U.S. election was the extent to which Chinese leaders welcomed the new Trump administration. The new U.S. president seemed to embody a transactional style of negotiating with which the Chinese were quite comfortable (e.g. no sermons about human rights). They showed relatively little concern about Trump’s campaign threats to hit China with a 45 percent tariff or to name the country a currency manipulator.

And shortly after President Trump took office, Chinese President Xi Jinping came to pay his respects at a summit in Mar-a-Lago. That seemed to go well, with Trump later declaring “I have a terrific relationship with Xi.”

Yet subsequent months must have left the Chinese puzzling over a list of core questions about how to deal with the United States:

  • Is Trump interested in show or substance? In the wake of the initial leaders’ summit, U.S. and Chinese negotiators struck a trade deal within the prescribed 100 day window. It included fairly modest promises from the Chinese side in areas such as beef and liquefied natural gas. Yet Commerce Secretary Wilbur Ross crowed about a “herculean accomplishment.” After this episode, the Chinese could be forgiven for thinking that the Trump administration was more interested in talking points than in actual trade accomplishments.
  • Are commercial and foreign policy linked or delinked? Also in the wake of the Mar-a-Lago summit, President Trump said he had offered China better trade treatment if it would help with the problem of North Korea. Chinese officials have indicated a preference for a more traditional approach in which the two realms are largely kept separate. China did support new U.N. pressure on North Korea in recent weeks – just as the Trump administration raised talkof new U.S. trade actions against China.
  • Is this an act or does the President really not have a clue? President Trump has seemed to believe that Xi Jinping can easily rid North Korea of nuclear weapons, should he so choose. In fact, China’s powers over its neighbor are limited and the Chinese worry a great deal about a North Korean disaster that would leave refugees flooding across the border. Similarly, President Trump and Secretary Ross talk about trade deficits as if they were easily set through trade policy. This seems to indicate an ignorance of basic macroeconomics. If these are their true beliefs, they will be impossible to satisfy.
  • What is the U.S. priority? The U.S. administration has a long list of complaints about Chinese behavior and policies. Which are most important? Those concerning the steel sector? Agricultural market access? The financial services sector? Intellectual property protection and forced technology transfer? Or trade deficits and currency manipulation? To be fair to the Trump administration, this failure to prioritize in its dealings with China has been a long-standing problem for U.S. diplomacy. The Chinese might be inclined to grant the United States’ top wish, if only they could figure out what that is.
  • What will the U.S. offer in return? Though China may want better relations with the United States, it does not see itself as dealing from a position of weakness. It has its own economic concerns, such as alarming levels of domestic debt. Further, Xi Jinping cannot be seen as kowtowing to President Trump, particularly with the 19th Chinese Communist Party Congress coming up this fall. There are long-standing requests the Chinese have made of the United States: fewer restrictions on technology exports from the United States to China, for example, or treating China as a market economy (thereby limiting dumping tariffs, a particularly big deal for steel). If Trump wants expensive Chinese concessions, what will big-ticket items is he willing to offer in return?

Even for close observers in the United States, these questions are not easy to answer. They cannot be any easier in Beijing.

Administration enthusiasts might hope that, in their confusion, the Chinese will just hand President Trump all or most of what he wants. A far more likely scenario is that the Chinese could decide Trump is an unpredictable and unreliable negotiating partner and turn their backs on a cooperative approach. The latter possibility could lead down a troubling path of commercial and foreign policy conflict.

By Phil Levy


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