Four ways Donald Trump and Xi Jinping could reframe US-China relations at their G20 meeting
- Stephen Roach says a bilateral US-China investment treaty to resolve conflict over market access and macroeconomic adjustments on savings would go a long way
- Working towards a global accord on cybersecurity and a permanent secretariat for bilateral dialogue would also be productive
The US had merchandise trade deficits with 102 countries in 2017, whereas China had trade surpluses with 169 countries in 2016. Squeeze one part of the multilateral imbalance for a deficit country or a surplus saver, and it simply gets allocated to other trading partners. For the US, this would lead to higher-cost imports – the functional equivalent of a tax increase on consumers. For China, it would spell increased export penetration into other markets.
The co-dependency framework is important because it underscores the need for joint resolution and compromise. As in interpersonal relationships, economic co-dependency can be destabilising and ultimately destructive. When one partner changes course, the other, feeling scorned, lashes out in response.
At a time of ever-escalating threats and counter-threats, the imperative of compromise cannot be understated. The upcoming meeting between Trump and Xi provides an opportunity to reframe the conflict as a strategic challenge for the world’s two leading economies. Here are four possible avenues to consider:
- Market access: After 10 years of tortuous negotiations, the time for a breakthrough on a US-China bilateral investment treaty is at hand. Both sides would need to offer concessions. A bilateral investment treaty would lift ownership caps on foreign direct investment by multinational corporations in both countries, eliminating the contentious joint-venture structure in China that the US continues to insist – incorrectly, in my view – has become a mechanism for forced technology transfer. Such a treaty would also enable an expansion of Chinese ownership of US-domiciled assets – posing a challenge to the anti-China thrust of recent legislation that broadens the oversight powers of the Committee on Foreign Investment in the United States.
- Saving: Both countries need to commit to responsible macroeconomic adjustments. The US needs to save more, reversing the reckless budget-busting trajectory reinforced by last year’s ill-timed, outsize tax cuts. Rebuilding saving, rather than tariffs, is the most effective strategy to reduce trade deficits with China or any other trading partner. At the same time, China needs to save less, putting its vast pool of capital to work funding the country’s social safety net, which is essential for consumer-led economic rebalancing.
- Cybersecurity: The digital realm is the battleground of the Information Age, and the September 2015 accord between then president Barack Obama and Xi clearly did not go far enough in defusing persistent tensions over online espionage, hacking and disruption. The two countries should take the lead in forging a global cyber accord, complete with pooled metrics of cyber incursions, attack-reduction targets and a robust dispute-resolution mechanism.
- Dialogue: It is terrific that the two presidents are meeting again after their earlier tête-à-têtes in Beijing and at Mar-a-Lago. Those gatherings follow more formal US-China engagements such as the Strategic and Economic Dialogue. But all of these efforts have been episodic events that are long on glitz and short on substance. A permanent secretariat that would engage in full-time collaborative efforts on key policy issues, including data sharing, joint research and public-private consultation, would be far more productive.
In light of contentious recent developments between the US and China, it is hard to be optimistic that a meaningful breakthrough is at hand. An agenda of substance should be used as a checklist against any accord that may be struck by Trump and Xi. The world is watching.
Stephen S. Roach, a faculty member at Yale University and former chairman of Morgan Stanley Asia, is the author of Unbalanced: The co-dependency of America and China. Copyright: Project Syndicate