President Donald Trump announced on Twitter the other day that he will meet with Chinese President Xi Jinping at the Group of 20 summit of industrial and emerging-market nations in Osaka next week to discuss U.S.-China trade. In response, the Dow Jones Industrial Average jumped by 300 points on Tuesday, and on Wednesday, stock markets around the world, including Taiwan’s, rose, and international markets appear to be doing well. However, judging by the past 11 U.S.-China negotiations, both sides still differ fundamentally on many issues, and resolving such issues in a short amount of time will not be easy.
First, U.S.-China trade negotiators have been unable to achieve results that satisfy both parties. As a result, the U.S. continues to raise tariffs on Chinese goods. In fact, over the past two days, the U.S. has met to discuss raising tariffs on approximately $325 billion worth of Chinese goods; that is, the U.S. is seriously considering whether to raise tariffs on Chinese goods to 25%. Because of that large amount, and because tariff rates are high, the impact on global trade will be severe.
Thus, every country, including China, is waiting to see what the U.S. will decide. Trump hopes to continue negotiations with Xi. However, because China cannot grasp or predict what the U.S. will think or do, it has adopted a more passive stance: force Xi into meeting with Trump. Some U.S. officials, including Trump, have said repeatedly that if Xi does not attend the G-20 summit, the U.S. will immediately raise tariffs.
Under this intense pressure, Xi has had no choice but to attend and consent to meeting with Trump. Nevertheless, even if Xi attends and allows Trump to save face, it will be extremely difficult for both sides to reach an agreement. Let us carefully examine how Xi responded to attending the summit. He said, “I am willing to … exchange opinions on the fundamental issues of the development of U.S.-China relations.” (This statement may also be interpreted to mean that the fundamental issues existing between the two countries are unsolvable — and Xi is willing to exchange opinions about this fact.)
What are these fundamental issues? Simply put, one is that the U.S. demands that the Chinese government end subsidies for some state-run enterprises, especially subsidies for research and development. The problem is, these are state-owned enterprises, and thus it is natural for them to take money from the government. If the government ceases subsidizing them, they will become entirely privately owned enterprises, and as a result, they will be broken up in the communist system. How can they ever agree to such a demand?
Separately, U.S. Secretary of State Mike Pompeo said in response to reporters at the G-20 summit, that the U.S. would also exchange opinions with China about the protests in Hong Kong. At the same time, Xi once again visited North Korea, indicating that he is able to handle matters with that country. Evidently, both sides are amassing bargaining chips that they can use during negotiations. However, the more chips that are brought to the negotiating table, the more complicated the situation becomes, and the harder it is to reach an agreement.
Actually, throughout the U.S.-China trade negotiations, it has practically always been the U.S. that has demanded things; China can only decide whether to comply and how much to give. But once China discusses its fundamental issues, it certainly will be unable to give in further. The U.S. should already know China’s bottom line from the 11 U.S.-China negotiation sessions which have taken place. The question now is when Trump would be willing to take a step back and allow both sides to come to an agreement.
Of course, Trump won’t show his cards this quickly. Because there is still some time before the U.S. presidential election at the end of next year, Trump’s strategy now is to continue to push China to the negotiation table because he wants Americans to know he is able to handle the issue of China. He is not in a hurry to reconcile with China, and can even up the ante and exert additional pressure on China. Perhaps, after the election campaign begins at the end of the year, Trump will show some goodwill and allow the U.S. and China to reach partial agreement. Then, he can tell American voters that he has the ability to handle China and thereby win more support.
Thus, we believe that even though Trump and Xi are meeting again, it remains extremely difficult for the U.S. and China to come to an agreement. The best outcome would be for the U.S. to announce it will temporarily hold off on raising tariffs on $325 billion worth of Chinese goods. That the leaders of both countries are meeting is, of course, better than if they were not meeting. However, the U.S.-China trade dispute remains filled with uncertainty to which governments, enterprises and individuals must carefully respond.
[This sentence may also be interpreted to mean that the fundamental issues existing between the two countries are unsolvable — and Xi is willing to exchange opinions about this fact.]
About this publication