By Clay Chandler
April 28, 2018

It’s tempting to imagine that, if Donald Trump can vault from baiting North Korea’s Kim Jong-un as “Little Rocket Man” one day to offering to meet him for face-to-face negotiations the next, he might achieve a similar last-minute breakthrough with Chinese leader Xi Jinping to defuse the U.S.-China stand-off over technology and trade.

A grand bargain between the world’s two largest economies is not impossible. Many global investors are interpreting as a positive signal the fact that Trump’s is sending his entire team of top economic advisers to Beijing next week—not just Treasury Secretary Steven Mnuchin, but also U.S. Trade Representative Robert Lighthizer, national economic adviser Larry Kudlow, and senior economic adviser Peter Navarro.

What might this Gang of Four accomplish? It’s not easy to predict. For one thing, all four think differently about China trade issues. Lighthizer and Navarro are considered “China hawks,” who believe that only the threat of sanctions will compel China to stop stealing U.S. technology and grant wider market access to U.S. firms in China’s market. Mnuchin is thought to be a “dove,” who fears the market fallout of a protectionist trade war. Kudlow is something of an enigma—a life-long advocate of free markets who, since joining Trump’s team has emerged as an ardent defender of import tariffs.

Notably none of the four has any significant previous professional experience in China. (Navarro, a Harvard-trained economist whose early research focused on corporate charity, has reinvented himself as China expert, and is the author of books such as The Coming China Wars and Death by China. But, as this piece in Foreign Policy points out, Navarro doesn’t speak Mandarin, has never lived or worked in China, and has never spent much time the country.)

Further complicating matters is that not even Trump’s senior economic advisers know what Trump wants from China. What are the terms of a deal he’d be willing to embrace as a win? Is it a reduction of America’s bilateral trade deficit? And if so by how much? Is it increased China market access for U.S. firms? If so, which ones and by how much? Is it intellectual property protection for American tech firms? If so, what kind of protections and how much would be enough? Will a deal require Xi to roll back his support for China’s state-owned companies? Or, to avert a trade war, will Trump’s economic team have to win concessions from Beijing on all of the above?

Washington Post columnist Josh Rogin argues Team Trump should hold out for that last option. He’s worried they’ll get suckered into endorsing a deal with only token concessions.

Meanwhile, the game of chicken between the U.S. and China over trade and technology gains momentum every week. The latest irritant: reports that the U.S. Justice Department is investigating Huawei Technologies for violating U.S. sanctions on Iran. Neither the Justice Department nor Huawei are commenting officially. But the mere suggestion that Huawei, China’s largest telecommunications manufacturer, might be found guilty of the same infractions that prompted the U.S. to slap a seven-year ban on U.S. sales to ZTE Corp., China’s second-largest telecom maker, were enough to tank Huawei’s stock price.

After a string of U.S. acquisition attempts failed to win approval from the U.S. Treasury-led Committee for Foreign Investment in the United States, Huawei has given up on cracking the U.S. market. But a determination that Huawei violated U.S. sanctions on Iran could have dire implications for the company’s ability to operate in Europe as well. On Wednesday, Huawei abruptly cancelled plans to sell $600 million in Euro-denominated bonds.

For ZTE, the U.S. embargo inflicts a crippling blow. By some estimates the company depends on U.S. hardware or software for as much as 90% of its products. By its own admission, the company is now fighting for its very survival.

In the wake of the U.S. ban on sales to ZTE, commentators in China’s state-owned media have argued that China must kick its dependence on American science and technology and focus instead on developing home-grown known-how and products. This week, Xi Jinping echoed that line. In televised remarks during a visit to a technology company in the city of Wuhan, Xi declared that the time has come for China to “abandon illusions and rely on ourselves” in developing new technologies.

That’s a chilling prospect, and one it seems unlikely Trump’s economic advisers, in their visit to Beijing, will be able to forestall.

Clay Chandler
@claychandler
clay.chandler@timeinc.com

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