The U.S. approach to trade negotiation misunderstands modern China.
By Michael Schuman,
With the latest round of trade talks between the U.S. and China ending in a predictable stalemate, one thing has become clear: The Trump administration’s approach to these negotiations has made it all but impossible for Chinese President Xi Jinping to make a deal. Until that changes, there’s no end in sight for the tariff-for-tariff tussle between the two countries, and little chance of achieving Donald Trump’s stated goals.
The White House seems to misunderstand a crucial fact about modern China. As Xi has tightened his grip on power, China’s economic and diplomatic initiatives have become closely associated with him personally. In foreign policy, Xi has sold himself as the champion of China’s global interests and the man to stand up to the West and restore the country to its former glory. At home, Xi has promised the “Chinese Dream,” a prosperous future with boundless new opportunities.
But this carefully crafted image comes with two downsides. First, Xi must avoid any potentially humiliating setbacks on the world stage, especially any inflicted by a Western power. Second, he must keep China’s economy growing, generating jobs and raising incomes.
You might argue that this mix should encourage Xi to reach a trade agreement sooner rather than later. After all, U.S. tariffs on Chinese exports will pinch China’s economy (at least a bit) at a time when it is already slowing and heavily indebted.
The calculus in China’s halls of power, however, is more likely the opposite — doing a deal is simply too dangerous. Economically, Xi portrays himself and the Communist Party as China’s saviors, and he has doubled down on the country’s state-led economic strategy. Most of all, that means his industrial policies aimed at upgrading manufacturing and technology companies, typified by the “Made in China 2025” program. These industrial policies are a primary target of Trump’s demands, since the U.S. believes they give Chinese firms an unfair advantage in global markets.
Xi, though, has almost no ability to negotiate over China’s industrial policies. Not only are they too important to the government’s agenda, they’re very much connected to Xi’s larger political message. That’s why Chinese officials have attempted to focus talks with the U.S. on less sensitive matters, such as deficit reduction. Buying a few more bushels of American soybeans won’t tarnish Xi’s image. Caving to the U.S. and curtailing his industrial program would.
The talks themselves are a diplomatic minefield for Xi. The bombastic approach taken by the Trump administration paints him into a corner. Any major concessions could look like appeasement to Washington’s bullying — and an unacceptable blow to Xi’s prestige. Xi would probably be even more sensitive to such an affront than usual. His highest-profile international initiative, the infrastructure program known as Belt and Road, has come under heavy fire recently. Just this past week, Malaysia’s prime minister told Xi that he planned to defer China-backed projects that were key elements in the Belt and Road package.
Of course, Xi only has to fret about public opinion to a point. He doesn’t need to face elections, and enjoys a firm grip on power at the moment. But he has also reached an implicit contract with the Chinese people: Accept his authoritarian rule, and in return watch China become a rich, respected superpower. If that unwritten compact breaks down, so does the justification for Xi’s regime.
Trump himself accentuates the risks for Xi in doing a deal. If the erratic and flip-flopping U.S. president reneges on an agreement — as he often does — Xi gets left with egg on his face. Xi may well figure that there’s little reason to take such a chance. With Trump embroiled in burgeoning scandals and potential legal trouble at home, and with midterm elections only two months away, Xi could easily conclude that the U.S. president will only become weaker over time, and so too his negotiating position.
If he really wants to reach a compromise, Trump must alter his approach. Toning down the rhetoric, ending the gloating, and offering up a handful of concessions might offer Xi a face-saving way to market a trade agreement to his domestic audience as a win. But with the White House digging in, at least for now, the standoff is likely to continue. Whatever economic advantage Trump believes he has, this trade war is ultimately a test of political will. That’s a contest Trump is very likely to lose.
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