Pearls and Irritations

ANU East Asia Forum has posted a new item, ‘The consequences of the Trump–Xi meeting in Florida‘

All eyes will be on Florida this week, where US President Donald Trump will ANU host an inaugural summit with Chinese President Xi Jinping. 

The first summit between the two leaders was always going to be consequential, given the size and influence of the two nations, and their growing competition over issues such as North Korean nuclear proliferation, East Asian maritime security disputes, bilateral trade and investment imbalances and the direction of the global economy.

But the Trump–Xi summit takes on even greater significance because of the degree of anti-China rhetoric Trump employed during his presidential campaign. There is now a high degree of uncertainty over whether President Trump will turn that rhetoric into policy.

During the election campaign, Trump threatened to impose a 45 per cent tariff on Chinese imports and described China as ‘the single greatest currency manipulator that’s ever been on this planet’. As president-elect, Trump broke with decades of diplomatic protocol by accepting a phone call from Taiwanese President Tsai Ing-wen, and suggested in an interview on Fox News that he may use the ‘one China’ policy as a bargaining chip in trade negotiations.

So far, President Trump has not moved to enact specific policies that follow through these threats, although his appointment of Peter Navarro as the director of the National Trade Council and his nomination of Robert Lighthizer as US Trade Representative, suggested that the Trump administration was likely to take a more confrontational approach to China in the economic realm.

On security matters, there have been more contradictory signals. Despite his threats during and in the wake of the campaign, Trump told President Xi during their first phone call that he would respect the ‘one China’ policy. And although Trump’s Secretary of State, Rex Tillerson, took a tough line on China during his confirmation hearing, Tillerson surprised Chinese and American audiences alike during his first official visit to Beijing last month when he appeared to take a more conciliatory approach to China and adopted Beijing’s formulation of language underpinning the ‘new model of great power relations’.

Inevitably, teething issues and missteps confound the early days of any new administration, but the degree of uncertainty surrounding Trump’s China policy is unusual. There is no doubt that we are at a precarious moment in the US–China relationship.

There is much at stake for both the United States and China in the lead up to the Florida summit.

As Zha Daojiong explains in our first lead piece this week, Trump faces considerable domestic pressure from America’s foreign policy advocates — Democrat and Republican alike — for whom ‘“get tough on China” is more the norm than the exception’, and from his supporters who are now encouraging Trump to ‘live up to his own tweets about China’. Trump also faces pressure from US allies and partners in Asia who ‘demand explicit and repeated assurance of American staying power’. The combination of these pressures, Zha argues, will make the Trump administration wary of appearing soft on China.

For Xi Jinping, the primary goal in Florida is avoiding a US–China trade war that would not only harm both countries’ economies, but which would also jeopardise Xi’s desire for a stable run up to the 19th Party Congress later this year. Despite pressure on Trump to come good on election hype, as David Dollar explains in our second lead piece this week, Trump must recognise that ‘threatening high tariffs is not likely to encourage China to yield and would backfire by hurting the US economy’. Instead, Trump ‘should consider restricting SOE mergers and acquisitions in the US given the lack of reciprocity on the Chinese side’, and should focus on encouraging the domestic reforms that would push China’s economy towards greater consumption. In addition, he notes ominously that the ‘US also has trade remedies that it can deploy in individual sectors’.

But the outcomes of the summit will have consequences well beyond the bilateral US–China relationship.

There is a need for a new bargain between the US and China. The risk is that in pursuing this bargain, Trump and Xi will agree to forge a ‘G2’ or a ‘new model of major power relations’ that could overlook the security and economic interests of US allies and partners, or undermine the open economic order.

Instead, as Zha argues, China ‘would be best advised to drop its past attempts at winning support from the United States for a broad framing of the bilateral relationship’ along the lines of the ‘new model of major power relations’. Failure to do so would ‘set off complicated trilateral geopolitical relations’ with countries like South Korea and Japan, and could further stymie efforts to resolve critical challenges like the North Korean nuclear issue. In Florida, Zha suggests, ‘the Chinese side should echo Trump by noting that the smooth development of ties between the United States and its Asian allies is positive for China’.

On economic issues, the two sides must resist a deal that pulls China away from greater economic openness. Instead, Dollar argues that speeding up the pace of China’s domestic economic reforms would actually help to shift China’s economy towards consumption and reduce the large trade surpluses that are so resented by the Trump administration.

‘China is keeping zombie state enterprises alive with credit from state-owned banks. [Trump] should encourage China to close bankrupt enterprises and privatize viable ones. China could easily afford more generous pensions for its large number of military and civilian retirees. This would be an immediate way to increase household income for a group that is likely to spend it. China also spends little public money on health and education, and greater social spending would increase households’ real income and bolster their consumption’, Dollar argues.

Though the Florida summit may end up being more about style than substance, the tenor of discussions between Xi and Trump, and whether or not the two sides can lay the foundations for striking some kind of bargain, will have major implications for regional and global order.

The EAF Editorial Group is comprised of Peter Drysdale, Shiro Armstrong, Ben Ascione, Ryan Manuel, Amy King and Jillian Mowbray-Tsutsumi and is located in the Crawford School of Public Policy in the ANU College of Asia and the Pacific.  

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