[Analytics] Collision of politics, trade make US-China deal increasingly difficult: experts

Presidents Xi Jinping (left) and Donald Trump will meet at the G-20 meeting in Osaka to get derailed trade negotiations back on track. PHOTO: NYTIMES. Sketched by the Pan Pacific Agency.

When Mr Stephen Olson began his career as a United States trade negotiator in the 80s, trade was an arcane subject. It was the domain of number-crunchers, concerned with lowering sky-high tariff levels post-World War II, on such obscure items as industrial pumps. This was boring stuff, said Mr Olson, joking that speaking about his work at dinner parties was a surefire way to bring gatherings to a close. Danson Cheong specially for The Straits Times.

“Civil society and average people took no interest in international trade. It was regarded as highly esoteric, nobody particularly cared about it,” said Mr Olson, now a Hong Kong-based research fellow at the Hinrich Foundation.

All that changed in the past few years. With the United States and China engaged in what is increasingly looking to be a protracted trade war, attention has zoomed in on trade – now a platform for great power rivalry to play out, he said.

This has been driven partly by increasing politicisation of trade issues in both the US and China.

Trade experts, including Mr Olson, said this to reporters last week during a series of seminars on international trade in Hong Kong. The sessions were part of a fellowship on international trade organised by the US-based non-governmental organisation the National Press Foundation.

This unprecedented collision of trade and politics is making the road to a trade deal all the more difficult, they said.

Presidents Xi Jinping and Donald Trump will meet at the Group of 20 meeting in Osaka on Saturday (June 29) to get derailed trade negotiations back on track after they broke down last month.

Their trade negotiators have already resumed contact, and both leaders are expected to announce a ceasefire in Osaka.

Mr Trump has reportedly agreed to put on hold additional tariffs he has threatened on more than US$300 billion (S$406 billion) worth of Chinese imports while negotiators get back to work – a similar outcome to when he met Mr Xi in Argentina last December.

But whether or not both sides can eventually reach a deal is getting more complicated, said Mr Olson. This has been largely enabled by the bipartisan consensus against China in the US – fed by a perception that Beijing has benefited from the rules of global trade, while not being constrained by its disciplines, he added.

Instead of becoming more like an open economy like the US after it joined the World Trade Organisation in 2001 – as the Americans anticipated – China’s state-driven capitalist model has persisted.

Things reached a head in 2015, when Beijing announced its “Made in China 2025” industrial strategy, which aims to use the “power of the government” to achieve dominance in 10 key industries, said McLarty Associates senior adviser Steven Okun.

“This is what has driven the bipartisan consensus, including consensus in the business community, away from the policy that we had before,” said Mr Okun.

While Mr Trump is not the first US president to use trade as a geopolitical tool – former president Barack Obama’s signature “pivot to Asia” strategy was anchored by the Trans-Pacific Partnership, which the US later pulled out of – he is the first to explicitly use trade to extract bilateral concessions from other countries.

“The fact of the matter is we have not had an administration that has been as explicit about intertwining strategic issues with trade,” said Mr Olson.

Washington’s more confrontational approach on Beijing extends beyond trade. While it has so far levied tariffs on US$250 billion worth of Chinese goods, it has also sanctioned Chinese tech firms including Huawei and ZTE, and withheld visas for Chinese scholars visiting the country.

The approach has fed the view among Chinese intellectuals, regardless of whether they agree with how Mr Xi is dealing with the trade war, that the fight with Washington is not about trade, but one part of a larger plan to contain China.

Dr Wang Huiyao, president of the Beijing-based Centre for China and Globalisation think tank said that what President Trump has done in the last two to three years through his trade tariffs is build up the narrative that the US is out to contain China or keep it in check. “This is very dangerous,” he said.

On its part, Beijing has hunkered down and shown signs that it is ready for a protracted fight with the US.

Dr Wang said China has three “red lines” in any trade agreements – first, that tariffs must be lifted; second, that any increase in the purchase of US goods should be reasonable; and third, that any deal should be balanced.

In any case, experts say both countries have now crossed the Rubicon, meaning that, whether a deal is reached or not, relations will not go back to how they were before.

On the trade front, Mr Okun said the fight has dragged on because Mr Trump believes he can take the economic pain longer than his Chinese counterpart; while Mr Xi believes he can take the political pain longer than the US President.

“So far, both have taken the pain equally, and that’s why we have gotten nowhere,” he said.

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