Macroscope
by

The Florida summit could be a ‘game-changer’ for US and China

‘Trump told his electoral base he’d create meaningful jobs. China can help him do that and in the process achieve what it wants...’

PUBLISHED : Tuesday, 04 April, 2017, 11:29am
UPDATED : Tuesday, 04 April, 2017, 10:48pm

United States President Donald Trump has done a fine job lowering expectations for his April 6 to 7 summit with China’s President Xi Jinping, tweeting that the meeting “with China will be a very difficult one in that we can no longer have massive trade deficits and job losses”.

Investors might wish to take that downbeat assessment with a large pinch of salt.

In November Xi said he would work with the newly-elected Trump, just as he had with former President Barack Obama, “to uphold the principles of non-conflict, non-confrontation, mutual respect, and win-win cooperation,” sentiments echoed almost verbatim by US Secretary of State Rex Tillerson in Beijing on March 19.

The bottom line must surely be that the world’s two largest national economies have a vested interest in finding common ground. Both sides are ultimately rational actors.

But for now, Trump may be tempted to try and enlist China’s help in financing his plans to reinvigorate US infrastructure

As China’s Foreign Ministry spokesman Lu Kang said on Friday of the China-US relationship “the market dictates that interests between our two countries are structured so that you will always have me and I will always have you. Both sides should work together to make the cake of mutual interest bigger and not simply seek fairer distribution”.

China’s perspective is that China-US trade relations have brought visible and tangible benefits to both nations and, as Zheng Zeguang, a Chinese foreign vice-minister, said on Friday: “Chinese companies’ investment in the US is growing rapidly and creating job opportunities there, which can help address the trade deficit.”

Zheng also took the opportunity to urge a relaxation on US restrictions on technology exports to China and to call on Washington to create “a good environment” for Chinese companies investing in the United States.

It is unlikely Zheng spoke in a vacuum.

It’s also very unlikely that President Xi Jinping would be travelling all the way to Florida if common ground had not already been agreed between Beijing and Washington. International summitry on this scale tends to be well-choreographed as the repercussions of being possibly perceived to have lost face could be severe.

But if we think we know that Beijing wants easier access to US technology and to facilitate opportunities for Chinese companies to invest in the United States, what might Washington be hoping to gain from the summit?

Clearly the Trump Administration continues to have a big problem with the US trade deficit. An executive order from President Trump on Friday authorised the Commerce Department and the US Trade Representative to conduct a 90-day broad-brush review of the reasons for that situation.

But for now, Trump may be tempted to try and enlist China’s help in financing his plans to reinvigorate US infrastructure, particularly following his problems with Congress over securing the repeal of Obamacare.

China is certainly in a position to help with that.

China Investment Corp’s chairman Ding Xuedong, speaking at the Asian Financial Forum in Hong Kong in January, felt that the United States would need at least US$8 trillion to finance the infrastructure plans, and that would require the involvement of overseas investors.

Chinese capital could end up helping to fund Trump’s US infrastructure plans creating US jobs in the wake and giving the US President a big economic and political win.

That would be on top of other possibilities, such as the talk of creating 1 million new US jobs when Trump met in January with Jack Ma, chairman of e-commerce giant Alibaba. Ma and the then president-elect discussed plans to allow small and medium-sized US businesses to sell into China through Alibaba’s platforms.

Trump told his electoral base he’d create meaningful jobs. China can help him do that and in the process achieve what it wants, namely a better environment for Chinese companies to invest in the United States and perhaps even fewer restrictions on Chinese imports of US technology.

That would be the very essence of the win-win cooperation spoken of by Xi and reiterated by Tillerson.

From an investor perspective, China could, just could, end up being the catalyst that re-energises the whole Trump Reflation trade, after a period where Trump’s problems with Congress over the repeal of Obamacare had led markets to become more cynical about the Trump Administration’s ability to actually deliver on their more ambitious campaign promises.

Having already lowered expectations for the summit, President Trump said on Friday that he and President Xi were “going to get down to some serious business” in Florida this week. It may be that markets, having bought into that message, are actually underestimating the potential for the two leaders to craft win-win cooperation.

business-article-page