Bridge Over Troubled Water

After months of rising tensions be- tween 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 ne- gotiating 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 confl ict 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 inhibi- tive tariffs. There are several reasons why the Trump administration, having fl exed its muscles in China’s direction since late last year, has returned to the negotiating table and is once again willing to embrace a dip- lomatic 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. presi- dent 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 funda- mental bonds that bind China and the United States together. Trade will now be enhanced in areas such as energy, agricul- ture, 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 fa- cilitate 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 defi cit.

Trump’s motives in seeking a soft-land- ing 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 politi- cal influence on North Korea, and he is willing to ease economic pressure on China in exchange.

Guided by rising economic national- ism at home, Trump has built his political agenda around rebalancing trade and re- capturing 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. eco- nomic 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 nat- ural 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 en- courage China to become more self-reliant. Trump’s combative trade agenda is just now beginning to unfold, and a funda- mental 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, includ- ing 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 specifi c implementation and efficacy of ongoing China-U.S. trade consultations, it is none- theless 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 confronta- tion. However, ceaseless infighting and jockeying for influence within the White House could still complicate any agree- ment 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 quantita- tive commitment from Beijing on cutting the $200 billion trade defi cit. Others down- play 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 invest- ment 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 rhetori- cal scrutiny in concurrence with the U.S. political cycle of presidential and congres- sional 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 be- tween a rising and established power is deeply appealing to many involved in de- ciding U.S. national strategy. This Cold War mentality has, on occasion, exacerbated the sense of rivalry and the likelihood of confrontation between the two coun- tries. 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 fi rst opening to the United States, and the United States has consequently ex- erted great infl uence on China’s economic development. Regardless of their respec- tive 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.

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