The US-China trade war isn’t just about trade – and that’s why Trump and Xi won’t resolve it at the G20

  • Neal Kimberley says the US-China dispute, from tariffs to Taiwan, runs so deep and the US is feeling so good about its position that one meeting won’t end it
PUBLISHED : Tuesday, 06 November, 2018, 10:58am
UPDATED : Tuesday, 06 November, 2018, 10:29pm

Buenos Aires might be the birthplace of the tango but there’s little likelihood of China and the United States dancing to the same tune when China’s President Xi Jinping and US President Donald Trump meet there at the G20 Summit later this month. Hopes for a breakthrough on trade differences ignore the fact that there is yawning gap between the two sides that cannot easily be bridged.

“With only four weeks before the G20 Summit begins, it seems a tall challenge for the Trump [cabinet] to craft a deal when prior news reports suggested the Chinese had not responded to even one of a reported 142 demands from the American side,” wrote Cliff Tan, East Asian head of global markets research at MUFG Bank in Hong Kong on Friday.

That said, Tan feels that, with goodwill on both sides, progress could be made “but the idea [that] in four weeks, following a months-long vacuum in trade talks, the Trump [cabinet] can artfully put together a ‘deal’ to show a big win for the [US president] seems a tall order”.

Indeed, when asked by CNBC on Friday if Trump had ordered the US cabinet to draw up a possible trade deal with China, director of the National Economic Council Larry Kudlow replied: “No, not specifically”, adding “we are not on the cusp of a deal”.

But what was even more revealing was how Kudlow then described the current state of play between the two sides, expressing disappointment at the lack of progress on trade differences and reiterating the issues Washington would like addressed if US-China trade relations are to get back on track.

Larry Kudlow on the Trump-Xi meeting at the G20

What the US midterms mean for China and world trade

“[The Chinese] have disappointed us,” Kudlow said. “Their responses to our asks have been unsatisfactory.” When asked if new proposals from China explained the possibility that Xi and Trump would include trade on their proposed G20 meeting agenda, Kudlow was clear that “we haven’t seen anything from the Chinese yet, nothing”.

The litany of US complaints encompass intellectual property theft, the issue of forced technology transfers, corporate ownership, tariffs and non-tariff barriers, cyberspace and cyber-hacking. Kudlow emphasised that while all these issues have been flagged by Washington to Beijing, as of Friday, “we have never had a response from China”.

That is quite a list. And if, so far, there has been no meaningful engagement between the two sides over these issues, it seems unlikely that those differences could be easily resolved in the few weeks before the G20 takes place.

Beijing ‘pessimistic’ Xi and Trump can ease trade tensions – if they meet

Indeed, trade is arguably just the tip of the iceberg. Iris Pang, Greater China economist at ING Bank in Hong Kong, argued last Thursday that “the nature of the trade war has become clearer over time”, comprising a technology war, an investment war and “an additional geopolitical element”, notably the “naval stand-off in the South China Sea and [the matter of] military sales to Taiwan”.

And, anyway, why would Washington itself be in any particular hurry to cut a deal with Beijing on trade? US economic data is currently robust. Trump tweeted on Friday that, “Everyone is excited about the Jobs Numbers – 250,000 new jobs in October. Also, wages rising. Wow!”

Why Asia should watch the US midterm elections closely

Economists polled by Reuters had expected a rise of 190,000 in US nonfarm payrolls for October, but the actual number was 250,000. The US unemployment rate stayed at a 49-year low of 3.7 per cent while a 0.2 per cent rise in average hourly earnings last month pushed the annual increase in US wages to 3.1 per cent, its largest gain since April 2009.

In contrast, in Beijing last week a statement from the Politburo, the top policymaking body of China’s ruling Communist Party, expressed concerns about “growing downward pressure” on the Chinese economy caused by a hostile international environment and noting “many difficulties with certain enterprises and the emergence of risks accumulated over long periods of time”.

Count on 2019 to bring greater challenges for China’s economy

Additionally, from a US political perspective, Congressional midterm election results should not necessarily affect what is essentially a cross-party consensus in support of a tough US approach towards China on trade.

While Beijing would undoubtedly disagree, US policymakers might well conclude that although their current strategy on trade towards China may not yet have brought China’s policymakers to the negotiating table, it is adversely affecting China’s economy while that of the US is motoring ahead.

Xi and Trump will meet in Buenos Aires but with regard to ending the current trade war, it takes two to tango. Neither China nor the US may yet be ready to take to the dance floor.

Neal Kimberley is a commentator on macroeconomics and financial markets