This past weekend, June 29, Trump and China president, Xi, met again at the G20 in Japan in the midst of an escalating trade war. Has anything changed? Or is it all just a repeat of the previous G20 Buenos Aires meeting between the two last December 2018?
US neocon trade negotiators (Lighthizer, Navarro) had scuttled a first pending trade deal back in May 2018. Thereafter China had refused for months to meet with Trump throughout the summer and fall of 2018. Trump and Xi finally met again at the G20 in Buenos Aires December 2, 2018. The outcome was the typical Trump happy talk and platitudes about how he and Xi had such a great relationship; how the two countries trade teams would now work toward an agreement; and how Trump in the interim would not impose another hike in existing tariffs on China, scheduled for January 2019. Stock markets began to recover, after their swoon of late 2018, expecting a trade deal while the US central bank, the Fed, simultaneously capitulated to Trump demands to stop raising US interest rates.
The two countries’ trade teams resumed negotiations in February 2019 and it seemed were about to reach an agreement once again. But, once again, as in May 2018, the negotiations broke down a second time, last month, May 2019—once again scuttled a second time by the US neocons and anti-China hardliners who had retained control of the trade negotiations.
In the aftermath of the Japan G20 meeting just concluded, it now looks like a similar staged show for Trump’s political base is once again on the agenda. Once more, the same ‘spin is in’: i.e. Trump declares publicly he has such a great relationship with Xi. There’s a great deal now pending between the two countries on trade. US and China trade teams will now begin again to thrash out the details on the remaining 10% or so of US-China trade differences. In the interim, once again, Trump announces he will withhold imposing tariffs (this time on an additional $325 billion of China imports to the US). In other words, coming out of the latest G20 it’s almost an exact déjà vu all over again on June 29, 2019, as it was at last December 2018’s G20 meeting between Trump and Xi in Buenos Aires.
So what’s happened in the interim, between the G20 meetings over the past seven months? And how is it similar to the first round of US-China negotiations that were held April-May 2018?
[ms-protect-content id=”3162″]
The First Trade Deal Blow Up: May 2018
In March 2018 the US launched its first salvo against China with US trade representative, Lighthizer’s, report that China was stealing US technology and that China’s 2025 program was a plan for it to surpass US next generation technology development (G5, AI, cybersecurity)during the next decade. Trump administration public statements, in contrast, focused on the China trade deficit and on China policies preventing US corporations’ majority ownership of its operations in China. Trump immediately imposed tariffs on an initial list of China imports to the US; China responded with a smaller list.
China quickly engaged with the US on these various issues, sending a team to finalize terms on a trade deal to the US in May. Trade negotiation teams traveled back and forth between Beijing and Washington. It looked like a deal was imminent.
As a deal got closer, in May 2018, US Treasury Secretary, Steve Mnuchin, assumed control of the negotiations with the Chinese. Neocon trade advisor, Peter Navarro, a member of the US trade team, was thrown off the US team. Mnuchin had apparently cut a deal with China: the latter would buy trillions of more US farm and manufacturing goods over the next five years, US bankers and multinational corporations would be given 51% or more access to ownership of their operations in China, and China would pass legislation placing limits on US corporate tech transfer in China.
But then the neocons struck back. With friends in the Pentagon and Congress they went after China corporations. First it was ZTE. Then Huawei. Navarro was put back on the US trade team. Lighthizer was put in charge again, and Mnuchin formally a co-chair of the US trade team but in reality demoted to a role of watching over Lighthizer and the neocons now once again running the show. The technology issue was back in as the priority issue. That’s next generation technology—i.e. 5G, Artificial Intelligence, and cybersecurity. The key technologies not only for the industries and trade of the coming decade, but also the key technologies for military hegemony for another decade. The neocons, the Pentagon, the US Military Industrial Complex, and their friends chairing the powerful military committees in the Senate and House demand that China not simply restrict tech transfer from US corporations doing business in China. No, the demand was the limiting of China nextgen tech development. China would not be allowed to leapfrog the US militarily in the 2020s.
The trade team neocons—Lighthizer, Navarro, and now Bolton in the background—had gained Trump’s ear and whoever gets to Trump last usually gets him to do what they want. Moderates, including the generals, were leaving the Trump administration like rats at the dock. Besides, Trump had turned his attention to the NAFTA 2.0 negotiations and the upcoming November 2018 US midterm elections. Further progress on US-China trade could wait. The US had gained concessions from China on two major themes: China purchases of US farm goods and 51% ownership. That would still be on the table when negotiations would resume. Let China think about the tech issue further in the interim, until after the November US elections. Trump tried over the summer and fall of 2018 to entice Xi to return to the table, but Xi did not take the bait. To do so would only give Trump another event to boast to his political base during the November elections. Xi would wait.
Delaying negotiations after the May 2018 blow up of negotiations would, of course, mean US farmers would continue to feel the pinch of China reduction of purchases of soybeans and other commodities. But Trump softened that blow with tens of billions of dollars of US subsidies to US farmers in 2018, followed by tens of billions more in early 2019.
G20 Buenos Aires Meeting and After
Immediately after the November 2018 elections, Trump renewed efforts to meet with Xi. They did so at the end of 2018 at the G20 in Buenos Aires. Lots of fanfare and typical Trump hyberbole followed. President Xi was such a good buddy. A great deal was in the works and would soon be announced. In the interim, Trump suspended raising tariffs to 25% on existing China imports as negotiations resumed February 2019. Lots of happy talk about all the progress being made, as the US stock markets recovered nicely in the first quarter of 2019.
But negotiations broke down once again, a second time, in May 2019 (as they had a year previous in May 2018). The official US line fed to the media was that the Chinese had reneged at the last minute, and added new demands and proposals—when in fact it was the US that introduced last minute demands it knew the Chinese could not accept, in the week before the China delegation was to come to Washington to finalize the deal.
This time the Lighthizer-Navarro-Bolton team not only demanded stronger limits on tech transfer from US corporations in China. Now the demand was China would have to sever all its companies’ relations with US tech companies in the US —and not just Huawei. A new US offensive was launched to intimidate US researchers doing joint tech research work with Chinese counterparts in US universities to end their joint cooperation; US tech companies in China were quietly told to start planning to move their supply chains out of China in the medium to long run; and the Chinese were told the US would not stop its proceedings against Huawei; moreover, it would escalate its pressure on US allies to sever 5G investment plans with Huawei as well. And that was not all. As the China delegation made final plans to come to Washington, the US team signaled publicly that the US would retain tariffs even if there were a deal. The excuse was the US needed to retain tariffs as a threat if China didn’t fully implement its concessions to the US. And then there was the especially insulting demand by the US: China would have to share even its independent technology development in 5G, cyber, and AI with the US as part of a deal.
The China delegation came over anyway, but obviously no deal was concluded. Perhaps it was to verify whether Trump really agreed with these onerous terms thrown up at the last minute by the Lighthizer-Bolton neocons. They left empty-handed. Apparently it was true.
How Trump and US Negotiate
The Trump approach was predictable. This is how he did business. And it is how he runs the US government. Make public declarations what a great person his negotiating partner was. Make public statements how likely a deal was. Then throw up unacceptable demands, threats, intimidating statements. Allow negotiations to break off. When the other side does so, blame them for failing to make a deal. Then wait and see if the other side makes concessions. When they do, privately or publicly, go back to the bargaining table with more concessions in hand. If necessary, play this same game over again.
China and Xi were burned once by these maneuvers back in May 2018. Now they met again at the recent G20 in Japan and the negotiations will once again resume. Will they be burned again, is the question. This writer thinks not.
Trump is now repeating the platitudes of praise for Xi and proclaiming China has made great concessions to buy record levels of US farm goods. But China had conceded that and put it on the bargaining table almost a year ago! Trump’s just repeating what has already been concluded some time ago. Nevertheless, the Trump ‘spin is in’. It should hold US business and farm criticisms at bay for several more months. The $20 billion more subsidies just passed to farmers will also assist placating Trump critics as well. (Likely paid for by cuts to US food stamps, housing subsidies, education, etc.)
What’s Next: More Déjà vu Maneuvering? Or a Deal?
It should be clear, however, that there’s no imminent China-US trade deal. Trump is just buying time. As in January 2019, no additional tariffs of $325 billion on China imports will be imposed. US business pressure and growing criticism of Trump’s trade policy, and growing farm sector concern, will prevent Trump from raising the stakes with more tariffs—for now. But US pressure to drive China tech companies out of the US economy and, if possible, from the economies of US allies in Europe and elsewhere, will no doubt quietly continue. So too will continue US pressure to isolate China company and University researchers in the US. And longer term, US will continue to press US corporations to relocate their supply chains from China to elsewhere in Asia or even Mexico.
When will a China-US trade deal be concluded, if ever? Not likely this year. For one thing, Trump likely wants to wait until closer to the 2020 election. And the neocons still have his ear and are still driving US trade policy (indeed, US foreign policy on a number of fronts as well).
For the remainder of 2019 US policy will be to squeeze China corporations out of US and allied economies even more, continue to collect tariffs from China imports, and to threaten China not to allow its currency, the Yuan-Reminbi, to devalue and thus negative US tariffs. Meanwhile, domestically Trump policy ‘spin’ will try to publicly make it appear (to Trump’s farm base and US business in general) that the US and China are working in good faith toward an agreement.
If the US neocons retain control of negotiations, and continue to insist on US retaining tariffs as an enforcement tactic post-deal, there will be no agreement even in 2020. And if they continue to go after China tech companies in the US and worldwide, and insist on China sharing its tech development with the US, that will further ensure no deal whether sooner or later.
From Tariff-Trade War to Economic War?
It’s probably becoming increasingly clear to the Chinese that the US has not launched a ‘tariff war’, as Trump likes to call it. It’s not even a ‘trade war’. US policy is driving toward becoming longer term a bonafide economic war between the US and China.
In the nearer term, the current differences may well transform the ‘tariff’ war into a ‘currency war’ that will spread contagion and reverberate globally across other economies—at a time at which the global capitalist economy is slowing fast and approaching as well a new financial instability. All China has to do is allow its currency, the Yuan-Renminbi, to devalue naturally in response to US policy and the slowing global economy. That devaluation would more than offset US tariffs. So far, China has intervened in global money exchange markets to prevent this. But all it needs to do is allow it to occur according to prevailing economic and market forces and just not intervene in global money markets further to prop up the Yuan. Then there’s China’s $1.3 trillion of US assets, mostly Treasuries. It could slow its purchase of new US government debt, which it appears it may now be doing. Should the trade-economic war intensify, if necessary it could stop or even sell off its dollar hoard. That would drive up long term interest rates in the US and the value of the US dollar still more, further slowing global growth. Rising US rates and the dollar will likely precipitate another stock and junk bond sell-off, similar to that which occurred late 2018. And Trump doesn’t like stock market declines. There are numerous other ‘actions’ the Chinese could take in response to US neocons intensifying or prolonging the US-China tariff-trade war, further driving the differences into a broader economic war. Even if US neocons don’t understand this, or don’t care, widespread business and banking interests do and could intervene more forcefully should the drift toward economic war continue.
Furthermore, there’s a wild card in the trade war deck that may check the neocons influence perhaps. That’s the current softening of the US and China economies. That could force both sides to an agreement. Trump may grab the major concessions on China purchases and US majority ownership rights in China and announce a big victory—just before the 2020 US elections.
China’s economy is slowing, but the US is as well. The US 1st Quarter GDP numbers were propped up by temporary factors associated with inventory over-investment and net exports, both of which are fading rapidly this quarter. Moreover, consumption is barely growing and business investment turning negative. Lagging indicators, like jobs, are now beginning to turn down as well. Central bank lowering of interest rates, driving massive $1.5 trillion in stock buybacks and dividend payouts this year may succeed in putting a temporary floor under stock markets. But the real economy is being driven to slowdown, or worse by year end, in the US.
A more rapidly slowing US economy, now clearly beginning, may change the trade negotiations dynamic. And if the US slips into recession, which this writer predicts by winter 2019-20, the pressure to cut a deal will grow. Trump may yet be convinced to take the China concessions on the table—minus the US demand for China tech capitulation—and declare a major victory in the trade negotiations in 2020, just before the elections. The nextgen tech-military confrontation could be renewed thereafter in other forms later.
As previously noted, for Trump a ‘deal is never a deal’, it’s never concluded, but reopened whenever Trump’s US wants.
An agreement is never an agreement. Breaking an agreement is standard practice for Trump. Just ask the Mexicans, where Trump threatened more tariffs even after concluding a new NAFTA 2.0 deal. Or the Iranians, who thought they had an agreement with the US. Or the Europeans who thought they had a Climate deal. For Trump, negotiations are a long term process, punctuated by happy talk events, followed by more threats, insults, new sanctions, and intimidations and reopening of deals once thought concluded by opponents.
In other words, even if a China-US trade deal is done, perhaps next year, the trade war will not be over. It will have just begun, as it evolves toward a broader ‘economic’ war after the 2020 elections, or even before. The key to a China trade deal sooner rather than later is whether Trump and US big economic elites can convince the neocons and military industrial complex to agree to a short term deal with China that provides only token nextgen technology concessions—with the assurance that the US will reopen and resume the trade-economic offensive after the 2020 elections once again.
For the US economic and political elites are in agreement with the neocons behind the Trump daily circus. They will not allow China to challenge the US next decade by leveraging the nextgen technologies that are the key to both economic and military hegemony the next decade. It’s just a question of timing by the US—elites, Trump, neocons. Take two bites of the bargaining apple from the Chinese, and come back later for the big bite: i.e. the fight over nextgen technology. Either that or continue to insist on three bites now, all at once.
This writer’s guess and prediction is that the now slowing US and global economy will result in the former, and the US will reopen any deal and demand more after the 2020 elections. For the current tariff-trade war is just the opening salvo in an epic struggle between the US and China. And the technology war has already begun, albeit in early stages. Trade and technology have overlapped for now.
Just as European and American imperialists jockeyed and maneuvered in the years leading up to 1914, with a focus on markets and natural resource control, in the 21st century the jockeying and maneuvering has begun—albeit with a different focus on nextgen technologies and control over global money flows, currencies, and other levers of financial power.
The 2020s decade will prove a highly dangerous period. The global capitalist economy is slowing, as it does periodically. A new restructuring is on the agenda, as it was in the late 1970s, in the mid-1940s, and on the eve of 1914. Trump trade and other policies should be understood as a broad reordering of US economic and political policies in order to ensure that US elites ensure the continuation of US global economy and political-military hegemony for the coming decade. Nextgen technology development is at the core of that restoration of US hegemony. Trump is just the appearance and vehicle of the deeper transformations in progress, in the US and globally.
Feature image: US President Donald Trump meets with China’s President Xi Jinping at the G20 leaders summit in Osaka, Japan.
Photo Credit: Kevin Lamarque, TPX Images of the Day, Reuters
[/ms-protect-content]
About the Author
Dr. Jack Rasmus is author of the forthcoming book, ‘The Scourge of Neoliberalism: US Policy from Reagan to Trump, Clarity Press, September 2019; and the recently published ‘Alexander Hamilton and the Origins of the Fed’, Lexington books, March 2019. He blogs at jackrasmus.com and his website is www.kyklosproductions.com . Dr. Rasmus tweets at @drjackrasmus and hosts the Alternative Visions radio show on the Progressive Radio Network.
