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Bridge Over Troubled Water
Consultations offer a way out of China-U.S. trade war
By Shen Yamei | NO. 22 MAY 31, 2018

Participants attend the 10th U.S.-China CEO and Former Senior Officials' Dialogue in Beijing on May 15 (XINHUA)

After months of rising tensions between the United States and China due to an economic dispute over bilateral trade, the visit by Chinese Vice Premier Liu He, special envoy of President Xi Jinping, to Washington in May signaled a turning point and the possibility of negotiating a way out of the looming trade war. The joint statement issued by the two countries, as well as a series of agreed follow-ups, showed a common readiness to cooperate rather than conflict over each other's trade agenda, relieving the pressure on China-U.S. relations.

The most remarkable outcome of this round of consultation is that both sides have agreed to step back from a trade war and to stop hitting the other with inhibitive tariffs. There are several reasons why the Trump administration, having flexed its muscles in China's direction since late last year, has returned to the negotiating table and is once again willing to embrace a diplomatic solution.

Clouds lifted

Summit diplomacy between Xi and Trump has served as a safety valve in times of recent tension. Soon after Xi stressed the importance of abandoning trade disputes in favor of win-win outcomes during a telephone conversation with the U.S. president on May 9, Trump's tweets indicated his concern for the future of ZTE, seen as a commitment to reversing the crippling sanctions imposed on the company by his administration. With momentum generated from the very top, the country's respective economic and financial teams have been engaged in a more active and structured process of consultation than before.

Furthermore, the tangible mutual benefits of cooperation are the fundamental bonds that bind China and the United States together. Trade will now be enhanced in areas such as energy, agriculture, healthcare, technology and finance, while concerns about investment flows and intellectual property protection are to be addressed. These developments are of benefit to both sides, as they not only facilitate the high-quality development of the Chinese economy, but meet the needs of both peoples and contribute to U.S. efforts to reduce its trade deficit.

Trump's motives in seeking a soft-landing for China-U.S. trade frictions are also in part, diplomatic. As he has suggested on more than one occasion, the United States needs China to exert economic and political influence on North Korea, and he is willing to ease economic pressure on China in exchange.

Guided by rising economic nationalism at home, Trump has built his political agenda around rebalancing trade and recapturing lost factory jobs. In the process of doing so, the United States has alienated many of its allies, neighbors and partners by withdrawing from the Trans-Pacific Partnership Agreement, renegotiating the North American Free Trade Agreement and castigating the WTO. In this context, it is implausible to expect that China-U.S. economic relations, as the ballast of bilateral ties, are to remain static. They are instead highly likely to fluctuate in more volatile ways in the future.

The underlying issue at the heart of the China-U.S. trade dispute as yet remains unresolved. It will take time to repair the structural problems of the U.S. economy and to bring back jobs and industries which the United States no longer needs. With the two economies deeply intertwined and highly interdependent, China makes a natural and easy scapegoat for this delay. But China is not about to give up on its push for hi-tech development. U.S. attempts to prevent China from innovating its way up the value chain to prosperity will only encourage China to become more self-reliant.

Trump's combative trade agenda is just now beginning to unfold, and a fundamental aspect of his approach is to deploy trade war as a tool of policy and the threat of trade war as a weapon of negotiation. Consequently, U.S. trade partners, including China, are intermittently hopeful and despairing, left constantly in the lurch by the unpredictability of Trump himself.

Uncertainty ahead

While skepticism abounds as to the specific implementation and efficacy of ongoing China-U.S. trade consultations, it is nonetheless revealing that China and the United States seem to no longer be on a collision course. However, much still depends on how the two countries view each other and the shape of their interactions.

Throughout Trump's tenure, the U.S. political landscape has been obfuscated by different competing voices. Treasury Secretary Steven Mnuchin and head of the National Economic Council Larry Kudlow have appeared more inclined to strike deals that reduce deficits and avoid confrontation. However, ceaseless infighting and jockeying for influence within the White House could still complicate any agreement reached between the two countries.

There has already been a backlash from hard-liners in the United States who see accommodation with China as a threat to national security. Some complain that Washington has failed to extract a quantitative commitment from Beijing on cutting the $200 billion trade deficit. Others downplay the importance of the agreement reached, describing it as empty, limited and tentative. Suggestions have even been made that it is better to walk away from negotiations to remind China of the strength of U.S. resolve. When Mnuchin stated that the trade war was merely on hold and that Trump could always decide to reinstate tariffs if China does not honor its commitments, it belied a threatening and cautionary tone.

The points of contention are many. It is doubtful that the United States will agree to relax export controls of hi-tech products to China, while Congress is expected to move ahead with legislation to enhance national security checks on Chinese investment in the United States, an issue which has been simmering since last year, and which could go to a vote in the next few months.

Another vexation is that China-U.S. relations are periodically faced with rhetorical scrutiny in concurrence with the U.S. political cycle of presidential and congressional campaigns. This bodes ill with mid-term elections set to take place this year. Populist appeals to extreme sentiment will only add to the uncertainty of bilateral relations.

But the most problematic issue is that the supposed inevitability of tensions between a rising and established power is deeply appealing to many involved in deciding U.S. national strategy. This Cold War mentality has, on occasion, exacerbated the sense of rivalry and the likelihood of confrontation between the two countries. The difficulties ahead should not be underestimated.

This year marks the 40th anniversary of China's reform and opening up. Forty years ago, China began to build ties with the West by first opening to the United States, and the United States has consequently exerted great influence on China's economic development. Regardless of their respective policies, China's peaceful development and Trump's campaign to make America great again will weather storms together in an increasingly interconnected world. As China continues to catch up with the United States as a global power, bilateral relations will continue to experience their ups and downs. It is incumbent on the two countries to compete and cooperate with each other in a way that is conducive to reforming themselves, adapting to change and moving with the times. And it is the common responsibility of China and the United States as two major countries to contribute to the peace and prosperity of the world.

The author is deputy director of the Department of American Studies at the China Institute of International Studies

Copyedited by Laurence Coulton

Comments to yulintao@bjreview.com

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