US-China deal won’t happen soon because Trump isn’t eager for one

Whether it is the simplicity of the story or some atavistic appeal of heroes engaged in single combat, high-stakes summitry captures the public imagination.

Thus, as U.S. President Donald Trump and Xi Jinping prepare to face off on the margins of the Group of 20 meeting in Argentina, the other 18 countries and the main event are virtually ignored. Everyone wants to know if the two leaders of economic superpowers can de-escalate the spiraling trade conflict and avert a new Cold War.

{mosads}Not to ruin the suspense, but … they can’t. There are two ways one can get a momentous result out of a leaders summit: The issues at hand could be very simple; or when issues are not simple, the summit can succeed only if there has been sufficient preparatory work to boil the issues down to a small number of well-defined questions.

In the U.S.-China commercial conflict, the issues are anything but simple. While President Trump’s focus on bilateral trade deficits makes no sense economically, it would at least serve to simplify the dispute if that were the extent of U.S. concerns.

China could address U.S. concerns by offering to redirect some of its purchases from other countries to the United States (China’s overall current account surplus has been relatively modest since 2011).

This seemed to be China’s approach, both during President Trump’s visit to Beijing late in 2017 and when Chinese President Xi Jinping’s emissary, Liu He, visited Washington in a May 2018 attempt to stave off a trade war.

China offered additional purchases and investments — exactly the sort of simple solution one can put forward at a summit with only minimal preparation.

But neither of those attempts succeeded. President Trump’s visit did nothing to deter the “Section 301” investigation into Chinese intellectual property practices — the case that eventually led to tariffs on first $50 billion of U.S. imports from China in July and August, then an additional $200 billion in September.

Though Liu He initially struck a deal with Treasury Secretary Steve Mnuchin, the White House renounced the agreement a week later.

The Trump administration made clear that its concerns extend well beyond simple tariffs or Chinese purchase commitments. The president and his team have raised concerns about intellectual property protection, subsidies, industrial policies and regulation.

They have said they will not be satisfied with promises; they want to see results. These are highly complex issues. There are not clear international standards governing many of these practices. There are no clear bright lines between acceptable and illicit behavior.

In fact, the problem is even more difficult than it sounds. There is no apparent consensus within the Trump administration about what Chinese offerings might satisfy their demands.

Hawkish advisers such as Peter Navarro seem dubious of anything China might say or do. More market-oriented advisers such as Larry Kudlow seem to suggest that trade peace could be right around the corner.

This schism, coupled with President Trump’s history of spurning deals struck by his own administration, cannot give President Xi much confidence that there is anything he could do to satisfy the administration’s concerns.

Given the complexity of the demands and the gravity of the growing trade conflict, one might imagine that U.S. and Chinese negotiators have been meeting all summer and fall in a search of a resolution. Instead, there appears to have been very little dialogue until recent weeks.

Even with the recent talks, Liu He opted to visit Germany rather than the United States this week — an indication that the preparatory work was not sufficient to get near a deal.

To make matters more difficult, while trade negotiators were failing to lay the groundwork for a summit resolution, Vice President Mike Pence delivered a speech that linked China policy to broader strategic concerns and seemed to portend a new Cold War. However legitimate the concerns he raised, this did not look like the precursor to a quick resolution.

If there seems little chance of solving the U.S.-China trade conflict at the bilateral meeting in Argentina, could there at least be an agreement to hold off on tariff escalation and to schedule new talks instead?

There are obstacles to even this more modest outcome. First, the Trump administration has demanded results, not promises from China, and this resolution could only be based on promises. Second, setting up formal talks would require some clarity and practicality about objectives, which the Trump administration has not yet shown.

Perhaps the most important obstacle to a positive outcome from the meeting with President Xi is that President Trump does not seem eager to avoid a trade war.

He told the Wall Street Journal this week that he was “a tariff person” and thought the United States would do well in the absence of a deal. This might seem like simple pre-negotiation posturing if he had not repeatedly opted for tariffs over deals for the last two years.  

Optimists have indulged themselves in the fanciful idea that a Trump-Xi summit will bring trade peace and market calm. The reality is that, given the lack of clarity and preparation from his administration, the only way one would get such an outcome would be if President Trump set aside his enthusiasm for tariffs and his concerns about China. There is no indication he is prepared to do anything of the sort.

Philip I. Levy is an adjunct professor of strategy at the Kellogg School of Management at Northwestern University and a senior fellow on the global economy at The Chicago Council on Global Affairs.