Will Trump-Xi meet head off global recession or worsen outlook? - GulfToday

Will Trump-Xi meet head off global recession or worsen outlook?

Xi and Trump-750

Xi Jinping with Donald Trump.

Don Lee, Tribune News Service

When President Donald Trump and Chinese President Xi Jinping meet in Japan later this week to discuss their nations’ worsening conflict over trade and commercial relations, the course of the global economy may depend on which Donald Trump shows up.

Trump has veered for months from threatening to bring down the Chinese economy to talking optimistically about being close to signing a great deal. One moment, he’s whacked Beijing with tariffs and threats of harsh sanctions; the next, he’s suspended the threats and even thrown Beijing a lifeline.

What makes the game especially fraught, not only for the United States and China but also for Europe, Japan and much of the developing world, is that the global economy is already showing signs of a slowdown. An escalating trade war between Washington and Beijing could drag growth down to a standstill.

In addition to the trade and tariff disputes, the two countries also face a major fight over technology, with the administration moving to declare the Chinese telecom firm Huawei Technologies Co. a national security threat. That would in effect cut off access to critical US chips and other components for one of China’s most prominent and globally successful firms.

The strike against Huawei has deeply angered many Chinese, who view the action as clearly intended to contain China’s economic and technological rise. Xi will almost certainly be seeking a reprieve for Huawei, which many experts see as a must for there to be any chance of reaching a near-term deal.

Other leaders attending the Group of 20 summit in Osaka, Japan, next weekend can only stand on the sidelines, hoping the heads of the two biggest economies will tamp down their fight and restart the trade negotiations that broke down in early May.

But no one knows which Donald Trump will surface in Osaka. Will it be the politician who is afraid of pushing the quarrel so much that he could damage the economy and harm his reelection chances? Or will it be the impulsive populist who acts out his nationalist instincts and stirs his most avid supporters with hard-line rhetoric?

“It’s a political calculus for him, and it’s going to depend on his base and the stock market,” said Claire Reade, a former assistant US trade representative and senior associate at the Center for Strategic & International Studies.

After talks had seemed to make significant progress, the abrupt breakdown last month set off a fresh round of tariffs and countertariffs, and much more punishing salvos are being loaded up by Washington. That has cast such dark clouds on the economic outlook that major central banks, including the Federal Reserve, are considering interest rate cuts to stimulate growth, something unthinkable a few months ago. The Fed’s pivot to a rate-cut stance, and Trump’s apparent eagerness to meet with Xi, have buoyed stocks in recent days. Investors and businesses, however, remain anxious.

“This is really a critical window to try to de-escalate the trade and technology tensions before what could be a very hot summer of tit-for-tat retaliations,” said Michael Hirson, a former top US Treasury official in Beijing who heads the Eurasia Group’s China practice.

Neither Hirson nor anybody else expects a breakthrough trade deal in Osaka. That seemed possible just a couple of months ago, but the collapse in negotiations showed the two sides remain far apart on crucial issues, including American demands for Beijing not only to address problems such as intellectual property theft and unfair market access but to make the changes enforceable, putting them into its national laws.

If anything, the bar for resolving their dispute is even higher than earlier in the spring, in part because of the escalated dispute over Huawei. Huawei is currently the world leader in next-generation telecommunications equipment manufacturing, and US officials have security concerns over allowing a firm subject to Beijing’s control to supply products that would be at the heart of other countries’ most sensitive data and communications.

In Osaka, Trump could suspend the new tariffs to revive negotiations. And he could decide to rescind or delay the blacklisting of Huawei, something that the president has suggested he may be open to doing.

But if he does so, Trump will be roundly criticized by lawmakers and others for going soft on China and trading away American security, just as he was after giving a reprieve to ZTE, another Chinese telecom firm that had been barred from access to American components for violating sanctions on Iran and North Korea.

Whether Trump actually makes an offer on Huawei will, like other elements of his dealings with China, be a calculation heavily tinged by politics. With his eye on November 2020 — Trump kicked off his reelection campaign last week — the president may well decide he can take the political hit on Huawei if he can get a larger trade deal, which would open the way for Beijing to buy hundreds of billions of dollars of US farm and other goods.

Trump’s numerous tariff actions — and retaliation from China and others — have hurt businesses and especially farmers in the Midwest who are also reeling from floods this spring. Even as Trump has asked for patience and promised financial relief to farmers, people in potentially important swing states such as Iowa and Wisconsin are getting restless.

A slumping American economy would make Trump’s reelection bid much harder, and analysts say that probably entered into Trump’s thinking in making the call to Xi last week. The two leaders had had virtually no direct communications since they met in December at the last G20 summit in Buenos Aires.

In recent weeks the Chinese have taken a harder line in pushing back against American demands, suggesting they could prepare their own blacklist targeting “unreliable” American companies and ban exports of rare-earth elements that are used in electric cars and other high-tech products. The Chinese were slow to confirm Xi’s meeting with Trump and pointedly noted in media reports that it was Trump who placed the call. And for the first time, Xi last week traveled to Pyongyang, the North Korean capital, to meet with Kim. Trump has met twice with Kim personally in a thus-far-fruitless effort to push North Korea to dismantle its nuclear program. “Xi is making very clear with his visit (to Pyongyang) that he is pretty central to the outside world’s interactions with North Korea,” said Reade, the CSIS China expert.

One incentive for China to negotiate some type of deal is that its economy is slowing too, in part because of Trump’s tariffs. And a permanent blacklisting of Huawei and potentially other Chinese companies, which the White House is considering, could do serious damage to China’s tech development.

“Xi has his own domestic constituents to worry about. Trump’s tariff actions have succeeded in rattling the Chinese elites,” said Thomas Rawski, a China economics and history expert at the University of Pittsburgh. But he doubts Xi will back down and accept substantive changes to China’s state-controlled economy, in Osaka or anywhere else for that matter.

“I just don’t see any room for a mutually acceptable compromise,” Rawski said. “One possibility is that they agree to keep talking — even though the talks aren’t going anywhere.”

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