The result of last week trade negotiations between United States and China was judged as a positive step forward in the relationship between the two colossuses. However, the talks may represent no more than a tactical success for the Trump Administration and the constituency of farmers. Indeed, structural reforms are still a mirage.
The meeting between Trump and Chinese Vice President Liu He led to tangible results to avoid the US will raising duties from 10% to 25% on $200 billion of Chinese products next month. Despite no signatures, China promised to buy 5 million tons in soybeans and to increase imports of agricultural and manufactured products together with services from the US.
So, progress? Yes, because the agreement has resulted in a more relaxed diplomatic atmosphere and helps reduce the US trade deficit towards China. For Trump this is the “biggest deal ever reached” while Xinhua News spoke of a “candid, specific and fruitful” agreement. However, the road ahead is bumpy.
At the root of US/China tensions is American opposition to state capitalism. Beijing does not intend to cut ties between state and strategic industries in innovation and advanced technologies. This forms part of China’s “core interests” and it is the true apple of discord.
Successive American administrations argued that China threatens the competitiveness of industrial sectors that facilitate US world economic leadership – Silicon Valley for example. Ever since Obama promoted the Trans-Pacific Partnership, the US sought to hinder the participation of state-owned companies in the Asia-Pacific trade. This was a way for Washington to maintain a mix of geo-economic openness and the geopolitical primacy required to impose an international rule of law favourable to US industries. Although the Trump Administration’s sanctions appear tactically more aggressive than the TPP, the strategic goal remains the same.
The ultimate objective behind current trade sanctions is an attempt to inflict free-market discipline on China’s state capitalism which is the crucial source of Beijing’s geopolitical muscles. By stimulating internal reform of the Chinese market, the US aims at pushing Chinese industries into free competition in areas where American companies have a competitive advantage. However – this betrays a subtle form of mercantilism.
It is through this lens that one should analyse the tension surrounding the Huawei affair and the polemics about China-sponsored technological thefts. We should also keep in mind that in this diplomatic-economic battle the agendas of both governments are ultimately backed by increasing military budgets, a return to 20th-century territorialism by China in the South China Sea and the US withdrawal from the Intermediate-range Nuclear Forces (INF) treaty.
Beijing seems to have a long-term advantage. The United States is constrained by the structural limits of its grand strategy, based on the coexistence of global market openness and national military superiority. China has become both America’s most important partner and worst enemy, therefore US foreign policy towards China has to steer a middle course between three diverging approaches – those of Treasury, Defense, and State. The difficulty in achieving a balance between these competing interests was palpable in the words of the Secretary of the Treasury Mnuchin, who pointed out ahead of the negotiations that the issue with Huawei and the arrest of Meng Wanzhou have nothing to do with duties on trade. However, it is impossible to separate the two aspects.
In a statement released at the end of talks, the White House emphasized that the 90-day roadmap agreed during the “Buenos Aires truce” in December represents a ‘hard deadline, and that United States tariffs will increase unless there is a satisfactory outcome by March 1, 2019’.
The next meeting will be held after the Chinese New Year around the middle of February, when Robert Lighthizer and Steven Mnuchin will travel to China. 2019 is the Year of the Pig and in the Chinese Zodiac among a pig’s attributes are that they are good tempered but also impetuous. Each side will need to concentrate on the first and beware the latter.
Zeno Leoni is a Teaching Fellow in the Defence Studies Department, King’s College London