Perhaps nobody was more surprised to hear that China had called President Donald Trump\u2019s administration to restart trade talks than the government in Beijing itself.<\/p>\n
After a weekend of confusing signals, Trump\u2019s credibility has become a key obstacle for China to reach a lasting deal with the U.S., according to Chinese officials familiar with the talks who asked not to be identified. Only a few negotiators in Beijing see a deal as actually possible ahead of the 2020 U.S. election, they said, in part because it\u2019s dangerous for any official to advise President Xi Jinping to sign a deal that Trump may eventually break.<\/p>\n
In off-the-cuff remarks to reporters at the Group of Seven summit in France on Monday, Trump claimed that Chinese officials called \u201cour top trade people\u201d and said \u201clet\u2019s get back to the table.\u201d In subsequent appearances he portrayed the outreach as evidence China was desperate to make a deal: \u201cThey\u2019ve been hurt very badly, but they understand this is the right thing to do.<\/p>\n
It all made for splashy headlines and momentarily boosted stocks, but nobody in Beijing officialdom appeared to know what he was talking about. Even worse, his efforts to depict China as caving in negotiations actually confirmed some of their worst fears about Trump: that he can\u2019t be trusted to cut a deal.<\/p>\n
\u201cTrump\u2019s flip flop has further enlarged the distrust,\u201d said Tao Dong, vice chairman for Greater China at Credit Suisse Private Banking in Hong Kong. \u201cThis makes a quick resolution nearly impossible.\u201d<\/p>\n
<\/div>\n
Two Chinese officials likened the country\u2019s approach to the U.S. during the Korean War, saying it consisted of fighting while talking, and using fights to speed up talks. China has prepared contingency plans in case of a no-deal scenario, three officials said, including putting U.S. companies on its unreliable entity list and stimulating the economy.<\/p>\n
China\u2019s foreign ministry on Tuesday again said it was unaware of the phone calls mentioned by Trump, reiterating a statement immediately after his remarks. One of the first to call out Trump was Hu Xijin, chief editor at the Communist Party-backed Global Times newspaper, who said Monday that the U.S. president was exaggerating the significance of low-level talks and China\u2019s position hadn\u2019t changed.<\/p>\n
While officials in Beijing are still willing to engage in trade talks, they are concurrently girding for a decoupling from the world\u2019s biggest economy — an effort made all the more acute when Trump \u201cordered\u201d U.S. companies via Twitter to look for alternatives to China. After trade talks broke down in May, Xi renewed calls for China to pursue \u201cself-reliance\u201d in key technologies and even called on citizens to join a \u201cnew Long March.\u201d<\/p>\n
\u201cA gradual decoupling is happening de facto because companies have to make alternative plans when there\u2019s so much uncertainty,\u201c said Tim Stratford, chairman of the American Chamber of Commerce in China and a former assistant U.S. trade representative.<\/p>\n
The conflict has inflicted pain on China, exacerbating the slowest economic expansion in almost three decades as authorities also seek to keep a lid on debt and financial stability risks. Still, officials have room to loosen policy further: The central bank last week unveiled a major reform designed to help lower borrowing costs, and the government is considering allowing provinces to issue more bonds for infrastructure investment.<\/p>\n
Politically, Xi doesn\u2019t have much wiggle room to indulge Trump. Hardliners have become more emboldened each time Trump has shattered a temporary truce and hit China harder, from raising tariffs to blacklisting leading tech company Huawei Technologies Co.<\/p>\n
While China has been open to a deal that includes greater purchases of U.S. agriculture goods, it\u2019s politically unfeasible for Xi to sign off on an agreement that leaves the punitive tariffs in place. He also can\u2019t agree to privatize parts of the economy that are crucial to the Communist Party\u2019s grip on power, such as certain state-owned enterprises.<\/p>\n
Party Legitimacy<\/h3>\n
\u201cFor China, it is about legitimacy of the Party\u2019s rule — economic performance and nationalism, especially about the rise of the Chinese people on the world stage,\u201d said Suisheng Zhao, executive director of the Center for China-U.S. Cooperation at the University of Denver\u2019s Graduate School of International Studies. \u201cBoth are at stake, and China can\u2019t afford to lose. China is not likely to make any substantial concessions currently.\u201d<\/p>\n
For now, the two sides are technically supposed to meet next month to resume trade talks. From China\u2019s perspective, progress primarily depends on Trump\u2019s political calculations heading into the 2020 election — and even then they will want iron-clad reassurances he makes good on his word.<\/p>\n
Trump may be realizing that his China-bashing will be \u201cdisastrous\u201d for the U.S. economy and American companies, according to Charles Liu, a former economic negotiator with the Chinese delegation at the United Nations and founder of Hao Capital.<\/p>\n
\u201cThe only thing that conceivably has changed is that Trump is under a lot of pressure to make a deal — not the Chinese, Trump,\u201d Liu said. \u201cThe Chinese position will be that if you want to talk, the door is always open, but this bullying is not going to be helpful for the discussion.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
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