In the end, Xi seemed to blink.
Speaking to other leaders at the G20 summit in Osaka, he suggested that China was ready to make concessions on tariffs, non-tariff barriers and protection of intellectual property.
Xi didn’t frame them as concessions, of course. Rather, they were China’s contribution to “pursue win-win outcomes through better co-operation,” as the China Daily put it.
China’s deputy foreign minister Zhang Jun had already set the tone with a statement that Xi was coming to Japan on a mission to “safeguard the international order based on international law, and safeguard international fairness and justice.”
Even as China holds two Canadian citizens as bargaining chips (one of whom should have diplomatic immunity according to Canada), Xi’s government presented itself in Osaka as a voice of reason and a paragon of the rule of law.
Trumps holds off
Xi struck the same tone in his bilateral meeting with Donald Trump.
“Co-operation and dialogue are better than friction and confrontation,” Xi said just before he and the U.S. president went behind closed doors.
The concessions China offered in that room do not end the trade dispute by any means, but they buy time for further talks.
“For at least the time being,” Trump said after meeting Xi, “we’re not going to be lifting tariffs on China.”
But there will be no new ones.
“We agreed that I would not be putting tariffs on the $325 billion that I would have the ability to put on if I wanted.”
Although the existing tariffs are already causing losses in both countries, many economists believe that expanding them to all Chinese imports would trigger a trade war that would hurt the whole world.
President Trump, however, described tariffs as a boon to the U.S. economy. Whether through misunderstanding or mendacity, he continues to insist that the cost of tariffs is borne by the foreign importer of goods, rather than by the American consumer — a view shared by almost no economist.
If the China deal fails, he said, “we have a tremendous ripe field of tremendous money that would be coming into our country.”
A list of gives
Xi said China will unilaterally move to cut tariffs, and to ease non-tariff barriers to trade.
He promised changes to the so-called “negative list of access,” an arcane web of rules that keeps some sectors and industries closed to investment.
Foreigners are subject to three different “negative lists” curtailing their access to the Chinese market. To navigate the labyrinth of rules, outsiders in China are often required to hire pricey consultants.
China has cut the list before, and Xi offered few details on how it will change in the future.
He also promised to open six new free trade zones in the country, and expand the existing one.
And he assured the world that a new Foreign Investment Law taking effect next Jan. 1 will strengthen protections for the intellectual property rights of foreign investors.
The theft or forced transfer of technology from U.S. companies to Chinese ones, as well as patent and copyright infringement, are long-standing American grievances.
But the reforms Xi announced in Osaka will likely fall short of satisfying U.S. demands.
When Trump met Xi at the last G20 summit in Buenos Aires in November, he also went into the meeting threatening imminent tariffs, and also emerged saying that he would give China time to show its sincerity.
Four months later, though, the U.S. did raise tariffs on about 40 per cent of Chinese imports, saying the Chinese had failed to deliver.
The seeds of failure lie in the two sides’ different interpretations of what had been agreed.
Whether the Chinese are prone to over-promising, or whether Donald Trump is prone to exaggerating what others have told him (he is of course), the result is a mismatch of expectations.
It remains to be seen if that will happen again.
Trump’s closing news conference in Osaka included statements about China’s commitments like this one:
“China is going to start — they’re going to be consulting with us, and they’re going to start spending money, even during the negotiation, to our farmers, our great farmers in the Midwest. I call them the ‘great patriots’ because that’s what they are. They’re patriots. And China is going to be buying a tremendous amount of food and agricultural product, and they’re going to start that very soon, almost immediately.”
He added: “We’re going to give them lists of things that we’d like them to buy.”
While it is possible that China has indeed agreed to buy U.S. goods according to a list drawn up by the Trump White House — a notion so far removed from free trade that Adam Smith must be spinning in his grave — some of Trump’s other statements during his news conference should encourage skepticism.
For example, there’s Trump’s anecdote about how he used tariff money to make those patriotic farmers whole.
“They did lose a certain amount of money,” he conceded. “I went to Sonny Perdue, who is our secretary of agriculture. I said, ‘Sonny, how much money — in the best year — did China spend on our farms, in our farms, buying?’ He said, ‘The best year, about $16 billion.'”
“And I took $16 billion out of those tariffs, and — essentially out of those tariffs — and we’re distributing it among farmers who have been hurt.”
The numbers are false. China bought nearly $30 billion of US agricultural produce during the best years of the Obama administration, and is projected this year to buy only $6 billion. The compensation package falls far short of replacing those losses.
“I’ve made up for the fact that China was, you know, targeting our farmers,” claimed Trump. “Because they know the farmers like me, and I like them. I love them. And they sort of love me, I guess, when you get right down to it.”
Trump also repeated past claims that tariffs are both achieving their goal of chastening America’s trading partners, and at the same time enriching America (“We’re getting tens of billions of dollars from China coming in.”)
He didn’t mention new figures from the Commerce Department that suggest his tariffs are displacing imports from China with imports from other developing nations.
From January to April this year, Americans spent about 12 per cent less on Chinese imports than the year before. But U.S. imports from Vietnam increased by 38 per cent, those from South Korea by 17 per cent, and from Taiwan by 22 per cent.
To compound that irony, the Commerce Department suspects that many of those new non-Chinese cellphones, shoes and semiconductors are in fact the very same Chinese goods that were put under tariff, but that have now been re-routed through countries like Vietnam, and perhaps minimally modified along the way, in order to justify a tariff-free Made in Vietnam sticker.
In 2016, when Trump won the election, the U.S. trade deficit was $349 billion US. Last year it was $420 billion.
Huawei for later
One aspect of Trump’s deal with Xi is of particular interest to Canada.
The company that has come to symbolize U.S. anger at China’s trading practices is telecom giant Huawei, which has deep ties to both the Chinese Communist Party and the People’s Liberation Army.
Trump appeared to kick that can of worms down the road, saying “We’re leaving Huawei toward the end.”
But in fact China already achieved a major breakthrough on Huawei, which is currently banned from buying U.S. equipment — although Trump told reporters at the closing news conference in Osaka that he will allow Huawei to buy products from American suppliers, as long as “there’s no great national security problems with it.”
“I said that that’s okay, that we will keep selling that product,” Trump announced, adding that “a lot of people are surprised.”
In fact a lot of people, including Republicans like Marco Rubio, had begun to suspect that Trump was drifting toward just such a concession.
Lifting <a href=”https://twitter.com/hashtag/Huawei?src=hash&ref_src=twsrc%5Etfw”>#Huawei</a> ban would be catastrophic mistake<br><br>Recent study of Huawei devices found more than 1/2 had vulnerabilities exploitable by <a href=”https://twitter.com/hashtag/China?src=hash&ref_src=twsrc%5Etfw”>#China</a> intelligence<a href=”https://t.co/15Mlh7DEpT”>https://t.co/15Mlh7DEpT</a><br>more-vulnerable-to-hackers-than-rivals-equipment-report-says-11561501573 <a href=”https://t.co/YOMt4nhg3L”>https://t.co/YOMt4nhg3L</a>
After all, that already happened with another Chinese telecom company on the same Commerce Department ban list: ZTE.
ZTE had been accused of violating U.S. sanctions that banned reselling U.S. equipment to Iran, the same allegation made against Meng Wangzhou.
Trump himself drew the parallel in Osaka. “Who’s done what I’ve done? I took ZTE off, if you remember. I was the one; I did that. That was a personal deal …. and they paid us a billion-two. $1.2 billion.”
In return, ZTE was removed from the Commerce Department listing that prevented it buying U.S. equipment, and there was no prosecution.
President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!
In Osaka, Trump said he would look at removing Huawei from the list in the next few days, suggesting that it may be on track to receive a similar deal: listing and charges dropped in exchange for a cash shakedown.
Canadians part of the deal?
Past Canadian ambassadors and professional China watchers have told CBC News unanimously that they don’t expect Michael Kovrig and Michael Spavor to be released, except as part of a larger deal involving the U.S. complaints against Huawei and Meng.
So while it remains unclear whether Trump kept his promise to raise the case of two Canadians held prisoner by China (and he says he didn’t discuss Huawei CFO Meng Wangzhou), the Trump-Xi talks may have brought their day of freedom closer simply by moving the overall Huawei dispute closer to resolution.
Of course, a ZTE-type deal would also confirm in the minds of the Chinese what they have alleged all along: that the whole dispute was never really about national security in the first place, but just a pretext for attacking a successful commercial competitor.