“The biggest deal ever made”—President Donald Trump’s Thursday afternoon description of a trade pact with China—is still not made. Despite optimism that Washington and Beijing would announce a landmark agreement this week, the two sides look as if they remain far apart, or at least much farther than their public comments suggested.
And that is a good thing. The last thing the U.S. needs is another broken trade agreement with the People’s Republic of China.
Major American news organizations, such as The New York Times and the Wall Street Journal, reported that Trump officials were expecting to announce a summit with Chinese ruler Xi Jinping Thursday. “Likely,” is how an “administration official” described an announcement during the president’s meeting with Beijing’s chief trade negotiator, Vice Premier Liu He.
In the early part of the week optimism had been growing that the two sides would come to terms. Some had even thought discussions were so advanced that they would disclose the terms of a deal during Liu’s stay in Washington.
For more than a month, American officials and observers had mentioned negotiators were close to agreement. In widely referenced remarks to reporters, Myron Brilliant of the U.S. Chamber of Commerce said that the deal was 90 percent done.
The problem, as Brilliant also said, was that “the last 10 percent is the hardest part, the trickiest part.” And that trickiest part relates to enforcement, “a major obstacle” as Washington D.C.-area trade expert Alan Tonelson told The Daily Beast. “The Chinese are digging in their heels,” he wrote in an e-mail message.
Why do Chinese officials appear so adamant?
They have been saying China cannot accept strict and unreciprocal enforcement provisions because those would make the agreement look “unequal,” in other words, like a humiliation for their country.
This nationalist narrative is not a good sign because it transforms what should be just a dry commercial matter into a deeply emotional one.
Perhaps the America-can’t-disgrace-China position is just cynical. Perhaps the Chinese negotiators know Xi Jinping has no intention of honoring the deal. Beijing for decades has been expert at not keeping trade promises, and Xi, even more than his predecessors, has taken the art of trade predation to a whole new level.
Chinese intransigence could leave Trump with little choice. “If the President wants an agreement that serves U.S. interests adequately,” Tonelson told me, “he’ll surely need to end the tariff-hike reprieve he granted Beijing in February, raise the levies, and keep increasing them until Beijing knuckles under.”
Not many people see Beijing knuckling under, yet that is a distinct possibility. The overriding reality for China is that the country needs the U.S. market. Beijing’s statistics, which normally understate Chinese exports to the U.S. because they do not include transshipments through Hong Kong, show that China’s merchandise trade surplus with the U.S. in 2018 accounted for 91.9 percent of its overall surplus for the year.
China’s overwhelming dependence on the American market gives Trump extraordinary leverage, and there are some indications he plans to use it. Thursday afternoon, with Vice Premier Liu sitting at his side in the Oval Office, a reporter asked the president “if there is a deal, what kind of benefit will it bring for both countries?”
“I think it’s going to be great for China in that China will continue to trade with the United States,” Trump said. “I mean otherwise it would be very tough for us to allow that to happen.”
Most everyone believes the United States and China cannot separate their economies, yet senior Chinese leaders are nonetheless concerned. “China and the U.S., as two large economies, have become closely entwined through years of development and cooperation,” Chinese Premier Li Keqiang said on March 15 at his once-a-year press conference. “It is neither realistic nor possible to decouple these two economies.”
If he’s not concerned about the possibility, Li would not have mentioned it.
Some have said that “disengagement”—the American term for decoupling—has been Trump’s goal all along. The argument heard with increasing frequency is that all other strategies with China have failed and so the United States should at least try something new. Why do Washington policymakers think that the remedy for decades of failed trade deals with that country is signing up another one?
China, unfortunately, at the moment looks too big and proud to accept a rules-based trade order, especially when compliance with agreements and others’ norms is seen as a national indignity. Trump, by threatening to cut off trade, may have hit on a solution to what otherwise looks like an intractable problem.