war on the rocks

On U.S.-China Trade, Will Xi Jinping Keep His Promises to Trump?

January 24, 2019

“No one is in a position to dictate to the Chinese people what should or should not be done.”
Xi Jinping, Dec. 18, 2018

During the 2018 G20 Summit in Buenos Aires, U.S. President Donald Trump held a much-anticipated, high-stakes meeting with Chinese President Xi Jinping. The leaders agreed to suspend the mutually destabilizing U.S.-China tariff and trade war for 90 days. The arrangement was made after Xi agreed in principle to purchase a “not yet agreed upon, but very substantial” amount of U.S. agricultural, energy, and manufacturing products and to negotiate within 90 days “structural changes” in forced technology transfer, intellectual property rights, non-tariff barriers, and cyber security.

During the time remaining in this cease-fire, U.S. negotiators would be prudent to heed the telling remarks Xi made in Beijing almost three weeks later and be wary of any Chinese trade assurances — including those made to secure the provisional pause. More often than not, Beijing begins negotiations with expedient guarantees but in the end rarely gives much that is substantive and enduring. Instead, Chinese negotiators make grandiose gestures and empty promises to achieve their short-term objective of moving along negotiations and buying time to set the conditions to maintain and realize their long-term goals.

We can expect that Xi will ultimately fail to keep his promises to Trump unless he is forcefully, consistently, and persistently encouraged to do so. He will give any assurances necessary to broker a shorter-term deal that will end the trade war, arrest the politically damaging Chinese economic downturn, and provide him maneuvering space in the coming years to undermine the agreement through incremental and covert noncompliance. Beijing relies on what it perceives to be Washington’s short attention span, lack of follow-through, and policy inconsistency. Xi likely believes that Trump will make the deal and then move on, with Congress distracted by domestic issues like the nearing 2020 presidential cycle  — which brings with it the possibility of a new administration with new priorities and new opportunities that Beijing can shape in its favor.

Therefore, U.S. trade delegates should neither rush to the negotiation table feeling overly confident and inclined to agree to a quick and easy deal for political expediency, nor be overly skeptical of Chinese sincerity and fail to consider viable proposals. Rather, they should take their time and make a concerted effort to seek an enduring agreement that includes structural changes, real incentives for compliance, and consequences for noncompliance. In particular, Washington should be wary of being politically tempted by more temporary concessions, such as agreements to buy U.S. goods, that Xi may be dangling as an effort to avoid discussion on longer-term structural reforms.

Understanding China’s Tactics

True to form, after the G-20, Beijing “conveniently” proposed several initiatives to show Washington that it was willing to negotiate in good faith despite giving few specifics and assurances. In early December, China announced an array of punishments that could restrict companies’ access to borrowing and state funding support over intellectual property theft. Soon after, Beijing declared its intent to lower tariffs on U.S. automobiles for three months and to resume buying much-needed soybeans from U.S. farmers. The day after Christmas, the National People’s Congress Standing Committee released draft legislation to relax China’s existing foreign investment laws. Four days later, China’s Supreme People’s Court announced that it would set up an intellectual property rights court to specifically handle appeals, such as patent cases. On the same day, U.S. Treasury Secretary Steven Mnuchin revealed that Beijing had supposedly committed to buy an additional $1.2 trillion in U.S. goods and services. More recently, Beijing offered to go on a six-year spending spree to ramp up U.S. imports in a move that would eliminate the U.S.-China trade deficit by 2024.

These overtures may seem promising, but their opportunistic timing and nature are consistent with past practices during previous negotiations. They should not be uncritically taken at face value. The presumption should be that they are disingenuous concessions unless proven otherwise.

China’s history is replete with unfulfilled or broken agreements. Beijing did not honor the 1984 Joint Declaration with the United Kingdom to keep Hong Kong free and even declared in 2017 that the declaration “no longer had any practical significance.” Beijing broke a bilateral agreement with Manila to mutually withdraw from Scarborough Shoal and then illegally seized the shoal in 2012. Over the following five years, Beijing reclaimed over 3,000 acres of land in the South China Sea despite a 2002 agreement with the Association of Southeast Asian Nations to not alter any geographic features in the sea, and then it broke the 2015 agreement between Xi and then-President Barack Obama to not militarize them. More recently, there is mounting evidence that Beijing reneged on another 2015 Xi-Obama agreement to stop cyber espionage through the hacking of government and corporate data.

Although the conditions and circumstances differed in each case, these broken promises add up to a consistent institutional pattern of behavior that, one can assume, suggests China’s future conduct. It will likely again give insincere assurances to try to end the trade conflict and stop its economic downturn, but it has no intention of keeping promises it felt were made under duress.

From China’s perspective, the structural changes that Washington demands will undermine its competitive advantage and represent just another manifestation of the United States and the biased Western-oriented world order trying to contain China’s rise and keep it from assuming its rightful place on the world stage.

The Agreement: Trump Said, Xi Said

Chinese media statements following the agreement in Buenos Aires attempted to cast Xi’s meeting in a more favorable light, seeking to shape the views of domestic audiences and, to a lesser extent, the views of Washington.

The China Daily described the agreement as such:

The two sides agreed to take immediate efforts to address issues of mutual concern based on mutual respect, equality and mutual benefit. As required by the 19th National Congress of the Communist Party of China, Beijing is committed to deepening reform and furthering opening-up. In the process, some economic and trade issues that are of Washington’s concern will be solved. Meanwhile, the U.S. side will actively address China’s concerns on economic and trade issues.

The more sensationalistic and assertive Global Times wrote that the United States “needs to maintain a large volume of imports to sustain its economy and China’s strategy of deepening reform and opening-up requires it to lower the market threshold and protect intellectual property rights.”

Xinhua provided the most pragmatic and accurate characterization of the agreement: “Considering the size of their economies as well as the complexity of bilateral ties, there is yet a long way ahead before anything of substance can be achieved.”

The “long way ahead” to a more comprehensive trade deal could be seen in the disparity between the official statements released by Washington and Beijing. The former noted the 90-day window for trade talks, while the latter made no mention of the window or of the fact that the tariffs will be raised to 25 percent if a deal is not reached in that time. While the White House statement said China had agreed to “immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, and cyber theft,” Beijing’s Ministry of Foreign Affairs said only that the two countries would “work together to reach a consensus on trade issues” but did not mention specifics or a timetable.

On balance, the White House offered greater details on what China had agreed to in exchange for the 90-day pause on raising tariffs on Chinese goods, while China focused on the broad reduction in trade tensions and left out certain facts to make the agreement read more favorably for China and preserve future leverage.

Beijing’s Strategic Messaging

On Dec. 18 , Xi gave a defiant speech tailored for a domestic audience that also included a pointed message for Washington. Speaking on the 40th anniversary of the transformative 1978 reforms that set China on its historic path toward modernization, Xi did not announce any new reform measures or economic liberalization efforts as many had hoped. Instead, he staunchly defended Beijing’s embrace of “socialism with Chinese characteristics” and asserted that China would stay the economic course despite pressures from the United States.

Xi seemed to be subtly messaging Trump and drawing the line ahead of future negotiations when he declared, no one can dictate reforms to China.” The Chinese leader continued:

What and how to reform must be based on the overarching goal of improving and developing the socialist system with Chinese characteristics…We will resolutely reform what should or can be changed, but will never reform what cannot be changed.

In other words, Beijing will reform on Chinese terms and according to the underlying premise of “China First.” The message and tone contrasted sharply with Xi’s remarks at Davos in December 2017, when he spoke confidently and glowingly about opening up the Chinese economy and “adhering to multilateralism to uphold the authority and efficacy of multilateral institutions.”

Which is the real Xi? The supposed globalist committed to a multilateral trading system and further opening of China’s economy, the pragmatic nationalist who sees America as a threat to the much-cherished Chinese Dream of national rejuvenation, or somewhere in between?

For Washington, Trust but Verify

Washington is on the right track with the appointment of U.S. Trade Representative Robert Lighthizer to oversee the negotiation. He is a seasoned negotiator and longtime hard-liner on China who will aggressively press Beijing to make the structural changes to its economy necessary to address longstanding U.S. grievances. Through the negotiation progress, American officials should be guided by the famous  “trust but verify” doctrine of former U.S. President Ronald Reagan to avoid more unfulfilled Chinese promises.

Washington should not feel pressured to make a deal simply for political expediency. Should Xi walk back on the initial conditions agreed to secure the reprieve in tariffs or prove unwilling to offer an acceptable deal with real and enduring structural changes, Trump and his team should be ready to walk away and press forward with the original plan to increase tariffs. They should not accept Chinese purchase of trillions of dollars in U.S. goods instead of lasting structural changes. Trump should even reserve the option to escalate and impose the original 25 percent tariffs on all imported Chinese goods to underscore that his administration operates differently and what the Chinese believe to have worked in the past will not work now.

Some may worry that the spiraling trade conflict with China hurts America as well and could destabilize the bilateral relationship. But an improved, enduring relationship must foremost be equitable, something that goes beyond just trade. Like a boulder rolling down a steep hill, China’s problematic behavior will be much easier to stop now than waiting until it gains speed and momentum.

Ultimately, Beijing may be in a lot of trouble if declining economic trend lines — slowing growth, burgeoning debt, building deflationary pressures, diminishing demands for Chinese goods and services, a bursting housing bubble, rising unemployment, etc. — continue. Xi gambled that the Chinese economy could weather the trade war and that Trump would acquiesce. He is now urgently trying to find an acceptable accommodation to the prolonged trade dispute without appearing to bow to U.S. demands, and consequently could lose big if things do not go as planned.

Xi faces a dilemma — either accept an unpopular deal with structural changes that he can mitigate on the margins and ensure enduring economic prosperity or pursue a nationalistic course that will further weaken the economy, foment social unrest, and erode the Chinese Communist Party’s political legitimacy and authority. At risk is the much-cherished Chinese Dream that he has embraced as his own. The first path will keep the dream alive while the second will deflate it. As the Trump administration seeks a longer-term deal with China, it should be aware of its own leverage as well as of its opponent’s preferred negotiating tactics.

 

Tuan Pham is a seasoned China watcher with over 20 years of professional experience in the Indo-Pacific who is widely published in national security affairs. The views expressed are his own.

Image: Office of the President of Russia