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Abu Dhabi, UAEWednesday 12 December 2018

Frozen deadlock likely the best outcome from Trump-Xi G20 head-to-head

Any return to the negotiating table is unlikely to quickly resolve the deep differences or go smoothly, says analyst

There is unlikely to be any major shift in positions when President Trump meets his Chinese counterpart Xi Jinping this evening. AFP
There is unlikely to be any major shift in positions when President Trump meets his Chinese counterpart Xi Jinping this evening. AFP

Whatever happens in Buenos Aires when President Donald Trump and China’s Xi Jinping dine on Saturday night, the trade wars are set to be with us well into 2019 and possibly beyond.

There’s a good reason talk swirls about the world slipping into a new Cold War. Power politics are alive and well. And the issues between the world’s two largest economies are too complex and longstanding to be solved in a few hours.

That doesn’t mean a ceasefire isn’t possible. Based on conversations with officials on both sides and analysts familiar with the discussions this is what the best-case scenario looks like:

Stabilising the Relationship

Mr Trump has in his 22 months in office succeeded in disrupting the globe’s most important economic partnership and befuddling Chinese officials. Yet Chinese officials privately say they have learnt that Mr Trump reflects more than a passing phase in the relationship.

They are right. In Washington there is a rare consensus among Democrats and Republicans as well as current and former national security and economic policymakers that China has become a bad actor and that it needs to be confronted.

But on both sides of the Pacific concerns also remain about the consequences of an all-out economic war as reflected in nervy financial markets. Both the US and China therefore have reason to seek at least a pause in their conflict.

Chinese officials say their top priority is finding a way to stabilise the relationship and drawing the US back into the sort of structured dialogue that allowed both sides to manage past differences. The Trump-Xi dinner is their best opportunity to do that. A ceasefire is the first step.

Tariffs and Soyabeans

Mr Trump’s administration has seized on tariffs as a favoured tool. “I happen to be a tariff person because I’m a smart person, OK?” the president told the Wall Street Journal this week.

He also has demonstrated a penchant for truces, however.

When European Commission president Jean-Claude Juncker visited the White House in July he won a break that helped the EU fend off auto tariffs. Likewise, Japanese Prime Minister Shinzo Abe extracted from Mr Trump a moratorium on those same auto tariffs as a condition for entering trade negotiations that, as with the EU, aren’t set to begin in earnest until 2019.

That is why many analysts believe the best - and most realistic - potential result of Saturday’s dinner will be a ceasefire featuring a pause in any new tariffs.

The Trump administration has imposed duties on $250 billion in imports from China so far. On January 1 the 10 per cent tariff on $200bn of that total is due to rise to 25 per cent. So one goodwill gesture would be to delay that escalation while talks proceed, a move that would be welcomed by US companies concerned about trade war. Mr Trump has also threatened to impose import duties on the remaining commerce with China, which he could also suspend.

Any such moves would, however, require Chinese concessions. One obvious one: the removal of the retaliatory tariffs China imposed on American soya beans, which hit harvests from Trump-supporting states such as Iowa and North Dakota.

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A frozen conflict and a long conversation

Since the beginning of their assault on China, Trump officials have repeatedly scorned the way past American presidents were drawn into prolonged dialogues with Beijing that ultimately went nowhere. “The game that China has played - and they played people in the Bush administration like a violin - is to do the tap dance of economic dialogue,” Peter Navarro, one of Mr Trump’s most hawkish trade advisers, said in a November 13 speech in which he mocked even some of the Trump administration’s early negotiations with China, including one that yielded a promise to buy more American beef that never delivered. “Where’s the beef?”

But if the best result for Mr Trump’s dinner with Mr Xi is a ceasefire, the most awkward component is it would trigger a prolonged conversation that may go nowhere and mark a repeat of the very same pattern that Mr Navarro ridiculed.

Any final armistice in the trade wars will thus be difficult to reach. The Trump administration is seeking fundamental changes to Chinese economic policy and an end to things like industrial subsidies via cheap loans and intellectual property theft that spurred China’s economic rise. China, too ,has demands, such as an end to US export controls on vital technologies and what it sees as a discriminatory scrutiny of its investments in America.

Wendy Cutler, a former senior US trade negotiator, said any return to the negotiating table is unlikely to quickly resolve the deep differences or go smoothly. “It’s a path that undoubtedly will be paved with many bumps and setbacks,” she said.

The politics in the US are also difficult. Both the consensus ssepticism of China and the high-volume partisan nature of Washington politics mean any deal Mr Trump strikes will be scrutinised. One that he struck in May resulted accusations he had gone soft. Within days Mr Trump switched and ordered up tariffs.

For that reason, if the best-case scenario from a Buenos Aires truce is a ceasefire that may in the end yield little more than a frozen conflict and a lengthy conversation. And that’s the best case.