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Abu Dhabi, UAEWednesday 19 December 2018

In the US-China trade war, Beijing appears to have the upper hand

Washington seems to have lost the art of balancing its conflicting policy imperatives and is doing so in a very public way with its sway in the East declining ever more quickly, writes Alan Philps

Beijing has the upper hand in US-China trade talks. Fred Dufour / AFP
Beijing has the upper hand in US-China trade talks. Fred Dufour / AFP

Last week a photograph that would normally invite no more than a yawn from the twitterati was doing the rounds on Chinese social media – a shot of the Chinese and US trade missions at formal talks in Beijing.

What stood out was that the Americans all appeared to be old men, without a full head of hair on their side of the table. The Chinese team looked young and keen and included the only female whose hair, whether by happy coincidence or design, was obscuring the face of the Chinese chief delegate, 66-year-old Liu He.

In some posts, the photo was paired with a historic shot: the signing of a 1901 treaty under which colonial powers – including the US – imposed harsh conditions on China’s hapless Qing dynasty at the end of the Boxer Rebellion, an insurgency against foreign encroachment.

In that shot, the colonial powers are straight-backed and smartly turned out while the Chinese look old and bewildered. The message was clear from the comparison between the two photos: Uncle Sam is now in his dotage and the future belongs to young China.

A picture can tell a thousand lies. There is no denying that the US Commerce Secretary Wilbur Ross is 80 and the US Trade Representative Robert Lighthizer is 70. The Chinese might have been tempted to pack their team with some young faces to highlight the contrast in age, in their own version of digital diplomacy.

That aside, the reality is not very reassuring for President Donald Trump. He has long promised a trade war with China, and predicted it would be “easy to win”. Specifically, Mr Trump had wanted China to cut its trade surplus with the US by $200 billion a year but despite some positive signs from Beijing there has been no confirmation that this is acceptable to China. The Chinese government only promised to buy more US food which, given the Chinese middle class’s growing taste for meat, is likely to happen anyway.

Aside from the US trade deficit with China, there is a long-term contest for supremacy in high tech between the US and China. Given the Chinese government’s ability to focus investment on high tech fields, China seems bound to overtake the US in at least some of the industries of the future. Preventing American technology from leaking to China or being stolen is not easy, given how huge the market is.

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Despite Mr Trump’s clear intentions on trade, his White House team is still riven with disputes between the China hawks, such as Mr Ross and Mr Lighthizer, and the doves, led by the Treasury Secretary, ex-Goldman Sachs banker Steven Mnuchin, who announced the rather limp conclusion of the talks in Beijing – the US-China trade war was “on hold”.

But the complexities of trade policy are not the only obstacle to Mr Trump getting his way. He is finding that now is not a good time to open a trade war with China when he relies on Chinese support to make a success of his June 12 summit with the North Korean leader Kim Jong-un.

The US needs China to maintain the pressure of sanctions on the North Korean regime. Any deal to scrap North Korean nuclear weapons would rely on China providing the Kim regime with a guarantee that it would survive without its nuclear insurance policy.

Mr Trump is now preparing the ground to blame the Chinese leader Xi Jinping for the planned summit being cancelled – a growing possibility – or ending in failure. Mr Trump has suggested Mr Xi might have “changed the mind” of the North Korean leader about the benefits of doing a deal with America. “I can’t say I’m happy about that,” he said earlier this week.

Having eagerly accepted the offer of a face-to-face meeting with the North Korean leader, Mr Trump is now aware of the many pitfalls in the way of a fairytale ending and the Nobel peace prize. The tone from North Korea has become more aggressive, which Mr Trump believes to be the result of China using the summit to undermine Washington’s negotiating position on trade.

In South Korea – where the newly elected President Moon Jae-in is hugely invested in the prospect of a formal end to the Korean War of the 1950s – they take a different view. The blame for the change in tone in Pyongyang lies in comments by Mr Trump’s hawkish National Security Adviser, John Bolton. He suggested that the goal of the nuclear talks should be the “Libya model”, under which the former dictator Muammar Gaddafi shipped out his nascent nuclear programme to the US in exchange for money.

But, as every North Korean official knows, the “Libya model” ended with America, Britain and France intervening to support rebels, who eventually captured and murdered Gaddafi.

Mr Bolton’s comments blew away the diplomatic fog around the goal of the summit – “denuclearisation” – which can mean many things. For the Americans, it means the unconditional surrender of North Korean’s nuclear weapons, although Mr Trump appears to have softened his position. For Mr Kim, it probably means endlessly drawn-out negotiations on cuts in North Korea’s nuclear armament against reductions in US military forces in the south.

By any standard, this latter outcome – the US negotiating with a rogue state on the same basis as with an accepted nuclear power such as Russia – would be seen as a catastrophe by Washington’s allies.

No one expected US-China trade tensions to be quickly resolved: the two countries will be sparring for decades. Nor was there ever any magic wand for North Korea. What is different here is that Washington seems to have lost the art of balancing its conflicting policy imperatives and is doing so in a very public way.

This does not mean that America is going the way of China under the Qing dynasty, which collapsed in 1912. Rather, that its sway in East and southeast Asia will decline ever faster in the face of growing Chinese power. Allies elsewhere, seeing the erratic behaviour in Washington, will all be thinking about their future.