Key Challenges on US-China Trade War

Simone Gao: U.S.-China relations. The G-20 is coming up. So what do you think will be the outcome of the Trump-Xi summit?

Stephen Yates: Well, my experience tells me that expectations should be very low. Usually when leaders get together they exchange talking points, they have some sense of what each is seeking, and the simplest prediction is that there will be very little outcome. And most of our leadership meetings are like that. Occasionally it’s different. You end up with something like Nixon going to China or having a big fundamental change in American policy. I don’t think this kind of meeting is a big fundamental change. President Trump has just gone through a midterm election; President Xi is under what we perceive to be strong economic and political pressure inside China. I don’t think either leader is looking to make big concessions in this meeting. That’s an important time to have a conversation between the two leaders. I don’t believe that President Trump feels the need or the desire to fundamentally change his trade policy. I think he intends to keep very strong pressure on China economically, at least through his reelection campaign, and maybe even beyond. These are beliefs about economic policy and the impact that U.S. trade policy has had on American workers that he has articulated for several decades. This is part of his political theology almost. And so I don’t expect him to make a significant change and concede. What I’m hearing from the Chinese side, they send envoys to the United States almost sounding boastful that they’re actually in a strong position, from their point of view. And so, so far, on the U.S. side, what I understand, and actually agree with, on the Trump administration approach on economic policy towards China, I don’t see that changing. And then what I see from China is more of the same theater of saying we’re strong, we are displacing the United States as the economic leader of the world, you are becoming isolationist because of your protectionist policies. And we have two leaders talking past each other. That’s what I think the G20 meeting is likely to be like. That President Trump will restate his priorities. He will speak in terms that say he’s open to a deal, but it’s a deal that President Xi is not prepared to accept in my estimation right now. And so the back-and-forth, the tensions, the on-again, off-again negotiations are likely to go on for at least the next two years.

Simone Gao: Then what’s the purpose of this meeting after all. I mean it’s speculated that Xi Jinping initiated the request to meet, right?

Stephen Yates: Yeah. Well, it is part of a pattern that, when major leaders go to these multilateral gatherings, and we know President Trump doesn’t like multilateral gatherings, that they’ll have bilateral meetings with key counterparts. Even to American stakeholders, say, like investors in Wall Street and farmers and manufacturers around the United States, they’re feeling some of the effects of the trade tension. And so it’s reassuring to them to see our leader engage the Chinese leader even if they’re not making concessions or accommodations or reaching a new deal. If there was no conversation going on, that could create a degree of uncertainty among some of these economic and political actors that would be a problem for U.S. politics and U.S. policy. And so even though this is somewhat theater, I think that that theater has an important impact on some key American stakeholders. I expect that President Xi Jinping has similar needs inside China to be seen engaging the U.S. president even if there isn’t a clear, definable outcome to come home and say this is what I got from the meeting. So that’s what I assume the purpose of this meeting is. But I would put it at extremely low chances of a significant policy development coming out of the meeting, even if something is announced, it’s probably a symbolic announcement more than a major breakthrough or measurable change in the economic relationship.

Simone Gao: But the difference between the U.S. and China is, China cannot afford a prolonged trade war, the U.S. can.

Stephen Yates: I believe that to be true. But as unimportant as I am, I believe that President Trump believes that to be true. And, while there are many analytical fights among China experts and economic experts about who’s winning, who’s losing, who’s facing what kinds of risks and pressures in this, the dominant analysis that the President of the United States accepts is that there’s more pressure on China, it’s having a more negative effect on China’s economy than on the American economy, and there are large numbers of American voters and workers who feel like decades of U.S. policy towards China has unfairly disadvantaged them. So even if they’re paying a price in the short term, a lot of them say that they’re willing to accept that price if it results in a rebalancing of the U.S.-China economic relationship towards something more normal, more fair, more reciprocal. And those are the words that the Trump administration has been using. And those are ideals that a large number of Americans would agree with. The key test is: do we go through this period of risk and tension and get better results. And so far, it’s too soon to say. But I support the direction the policy is going. I don’t think the president is going to change it. And when the president looks at his 2020 reelection campaign, those states that are very key for him to keep in his coalition to get reelected are the states where labor movements and other activist groups were very critical of NAFTA and of U.S.-China trade. And so what he’s done on trade negotiations so far is very much aimed at those geographies, and I think he has to keep consistent with his policies.

Simone Gao: So that makes me wonder what Xi Jinping’s thinking is even more. If President Trump won’t make concessions and China can’t afford a prolonged trade war. What is Xi Jinping gonna do?

Stephen Yates: Well, I would say, somewhat candidly, I don’t care what he does because it’s his job to figure that out. The biggest obstacle, though, for American policy, and I think for the benefit of the Chinese people, is how effective are we in helping the Chinese people know the truth about the economic impact this has? Because the Communist party still has near total control on information. They can make up their own statistics; they can make up their own leadership statements; and they can say that they are doing better off than they are. And there could be a large number of Chinese people that think, well, maybe I’m the only one feeling this pain. Or my village is the only one feeling this pain, but the rest of China is doing okay. And out of a sense of patriotism, they’re willing to sacrifice in their own small universe if bigger China is doing better. And that kind of propaganda has protected Communist Party leaders for a very, very long time.