Trump-Xi Summit: A Win for Trump or Another Beijing Trick?

Narration: President Trump and Xi Jinping met during the G20 summit. What surprised the American team the most?

Larry Kudlow: President Xi engaged in a level of detail—you could even say he was selling this.

Narration: Xi backed down from a tough tit-for-tat stance; what is the real reason?

Pokong Chen: China feels like it’s economically breaking down since its economy has been going downward while the American economy is improving.

Narration: The Dow fell 800 points after the summit due to competing accounts from the White House and Beijing. Does the American public really believe Chinese media?

Greg Autry: When the market moves, it’s because investment bankers and financial professionals who are aligned with the Chinese side of things are unhappy.

Narration: Is Trump close to hitting a home run in the trade war with China?

Title: Trump-Xi Summit: A Win for Trump or Another Beijing Trick?

Simone Gao: Welcome to Zooming In, I am Simone Gao. The Trump-Xi meeting at the G-20 summit last weekend took many people by surprise. Before the summit, most pundits predicted there would be very little outcome. Trump would persist on structural changes and Xi Jinping would refuse. Most likely Beijing will revert to its old tactics of agreeing to something but never really doing it. They would intend to buy their time in order to come up with new ways to maintain the status quo. But this time it felt different. Xi Jinping kicked off the conversation with a 30-45 minute monologue. He detailed a substantial concession list from the Chinese side. It seemed he did everything to prove his commitment before the American hawks. Does he really want to give up what he absolutely wouldn’t before? If so, why the change of heart? Let’s explore the causes in this episode of Zooming In.

Part 1: One Summit, Two Different Accounts

Narration: After the Trump-Xi meeting at the G20 summit, accounts from Beijing and the White House about what the two leaders discussed and agreed on didn’t match up.

Narration: According to a White House press release, President Trump agreed to leave tariffs at 10 percent on $200 billion dollars worth of product starting January 1st, 2019. He will not raise it to 25 percent at this time. China agreed to purchase a substantial amount of energy, industrial, and other products from the United States to reduce the trade imbalance between the two countries. China agreed to start purchasing agricultural products from American farmers immediately.

Narration: The White House also said Trump and Xi agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture. Both parties agreed that they will try to complete the transfer in the next 90 days. If they can’t reach an agreement within 90 days, the 10 percent tariffs will be raised to 25 percent.

Narration: Larry Kudlow, the director of the national economic council, attended the Trump-Xi meeting. He described what he observed in a teleconference with the media.

Larry Kudlow: I think this is just an enormous, enormous event. Enormous event. And I know we’ve been down this road with China in the past and we’ve been quite disappointed with the lack of results and follow-through. And that includes my own participation, which began with the Beijing trip. I guess I started out as someone who was rather optimistic, but nothing happened so I turned somewhat cynical. This one covers so much ground and so much detail. We’ve never seen this before. And furthermore, we’ve never seen the hands-on participation by President Xi before. In fact, that dinner was quite remarkable. First of all, I—it’s the first time I’ve seen President Xi up close and personal. I don’t know him at all. So I saw the chemistry between President Trump and President Xi. You know, we’ve been hearing that they’re friends and so forth. I actually saw it. And I think if you’re a cynic and a hardened cynic, you would say, “Well, you know, that stuff is just—it doesn’t mean anything.” And we’ll get to the cold, hard facts in a minute. But I do think it means something. I do. I think personal relationships matter and we’ll see how this turns out. But I will warn you I am cautiously optimistic about this. And I secondly want to note that President Xi engaged in a level of detail—you could even say he was selling this, which was, in my opinion, quite unusual for the head of state. Guys like me are supposed to know the details. He did. He made the pitch himself. Vice Premier Liu He, the top economic economics guru, as you know, actually told us—we had two private meetings with Liu before the dinner. Liu kind of flagged it in the second meeting Saturday. He said, “I’m not going to say anything. It’s going to be President Xi.” And we reported that to President Trump because that’s quite unusual. And he wasn’t winging it, he was well prepared. And so I was impressed with that and I felt that bolstered the Chinese commitment. I may be wrong, but I believe it did.

Narration: According to Kudlow, Xi Jinping actually did the bidding directly. White House National Trade Council Director Peter Navarro was also present and echoed this account.

Peter Navarro: It was extraordinary to have the president of China himself at that dinner spend the first 30 to 45 minutes laying out the parameters in detail of a deal—that’s never really happened in the history of the U.S.-China relationship. The way this generally works is that the minions meet and talk about these things. This was president-to-president, so that’s very much different as well.

Narration: According to the American team, not only was substantial ground covered in the meeting, but the Chinese team used an important word: “immediately.”

Larry Kudlow: The other point I want to make is, when we met with Vice Premier Liu He, he said several times—and I pushed him on this—that the China changes, with respect to tariffs and non-tariff barriers and other structural issues that we’ll get into in a few moments, would begin immediately. I don’t think that’s come out yet in the press reports. I did mention that in some of the interviews that I did this morning, “immediately.” And I said, “What do you mean, ‘immediately?'”  And he said, “Immediately.” I said, “Like Monday? Get going, Monday? That would be very persuasive.”  And, I said that to his top deputies. So we’ll see. But, I think, I can tell you I’ve never heard that “immediately” commitment before.

Narration: China’s official Xinhua News agency agreed with its counterpart in describing a friendly and constructive atmosphere. But in terms of what was actually talked about and agreed upon, it depicts a different picture.

Narration: According to Beijing, the U.S. and China agreed to stop adding new tariffs, without mentioning it’s only a temporary cease-fire. The report said the next step is to work to eliminate all tariffs. There is no mention of the 90 day negotiation period and what happens if the two parties don’t reach an agreement within three months. Xinhua also said China will further open its markets and increase imports based on the needs of China’s reforms and the Chinese market. The report didn’t mention the immediate purchase of large amounts of U.S. agricultural goods.

Narration: Chinese Foreign Minister Wang Yi’s press briefing was strictly in line with the Xinhua News agency’s report.

Narration: In a response to mounting criticism from Chinese citizens that the media concealed important details of the Trump-Xi meeting, chief editor Hu Xijin of China’s Global Times defended the Chinese government. He said it is normal for diplomats to highlight information that is beneficial to their country. He went on to say his media did not hide such information.

Narration: The Global Times also criticized the Trump administration for highlighting Beijing’s agreement to purchase $1.2 trillion dollars of American goods while failing to mention where the U.S. made concessions. It listed examples, like the U.S. hasn’t mentioned: “Made in China 2025” for a while. It also seemed to stop attacks on China’s state-owned enterprises and related industrial policies.

Simone Gao: The Global Times is in an awkward position. It still has to attack America even if it wants to somewhat differ from Xinhua. It is likely this slight difference is also ordered by the regime. The real question is why [did] the Chinese Communist Party feel the need to hide the details of this meeting at all? Here is my discussion with Chinese political strategist Pokong Chen.

Simone Gao: In your opinion, why did the Chinese communist regime hide part of the Trump-Xi meeting from its people?

Pokong Chen: The regime orchestrated this, as I had anticipated. Simply because this is almost the last chance for it to warm up China-U.S. relations and end confrontation between them. This is also the last reprieve President Trump and the U.S. have granted him after Xi’s repeated requests. So, evidently, it was China that made substantial concessions to the U.S. You may call it caving in, admitting defeat, or a signal of sincerity. It was flagged as “surrender,” in accounts of Russian and Indian media. That’s why the Chinese Communist Party (CCP), who had been so assertive and high-profile, was reluctant to publicize the truth. We remember Xi’s previous public remarks, claiming to “fight to the end,” “a tooth for a tooth,” and “never back down a single step.” He even swore to prevent Trump from taking advantage of China like cutting off mutton from a grown sheep. So defiantly, so absolutely. Despite such statements, Xi’s huge concessions made him unable to face the Chinese people, which may provoke civilian criticism, political unrest or a power crisis. As a result, Xi Jinping and the Chinese communist regime concealed details of the talk.

Simone Gao: Xi started the talk with a lengthy speech, offering great concessions, according to Navarro. Why did he do so? How is the Chinese communist regime doing amid the ongoing trade war?

Pokong Chen: The Chinese regime repeatedly employed a delaying tactic. Soon after Trump took office they staged a “100-day negotiation,” which ended up in failure due to the CCP’s delay. Later Vice Premier Liu He came to the U.S. for another round of talks. But no good faith had been found on the part of the Chinese regime. Then, the U.S. laid aside the negotiations. China didn’t ask the U.S. to resume the talks until its economy dropped to a dangerous point with the escalating trade war. However, Trump declared more than once that he wouldn’t restart the negotiations so soon, saying that China was not ready to reach a deal. The U.S. didn’t agree to launch this meeting until many promises, even from Xi himself, were made. So the spotlight of this talk was the fact that Xi spent 30 minutes elaborating his concessions to the U.S. team at the very start of the summit. This was done for two reasons. One, Xi almost lost his reputation for the U.S. part. Back in 2015, Xi made two promises to then-American President Obama: one, the South China Sea would never become militarized, but China ate its words later; two, China’s cyber theft targeted at American businesses would be stopped, which turned out to be more alarming than ever. Therefore, Xi lost (or nearly lost) his credibility in the U.S. Further, the past two years’ interactions with the Xi administration taught the U.S. counterpart that the barrier to Sino-U.S. talks or ties was no other than Xi himself. Both Mr. Kudlow, the director of the national economic council, and President Trump showed that Liu He and others consented to a deal, but finally Xi stood in the way. So this time, Xi Jinping himself had to stand out and air his own statements and commitments. Otherwise, this meeting would be impossible. Moreover, this posture unmistakably signaled that Xi has the authority of giving a final say. Only by doing so could Xi gain his credibility from the U.S. again, the last chance for him. There are three reasons for his willingness to back down. First, China is the inflicting party, with the U.S. being the victim, thereby accounting for Xi’s concessions. Secondly, compared with American democracy, Xi’s domination in a party state like China paved his way to concessions, whose authority can stifle dissent either from the CCP or from the Chinese society. Thirdly, China feels like it’s economically breaking down since its economy has been going downward while the American economy is improving. If market transfers and manufacturing collapse occurs, China’s whole economy will be shaken. As a result, Xi Jinping had to offer sweeping concessions.

Simone Gao: I also asked Greg Autry his opinion on the summit. Mr. Autry is assistant Professor of Clinical Entrepreneurship at the Marshall School of Business at the University of Southern California. He also co-wrote the book “Death by China.”

Simone Gao: Regarding the Trump-Xi summit, some analysts say Trump was fooled by Xi Jinping. Xi would not really make substantial concessions. Instead, they would just trick the U.S. in order to buy some time to come up with new ways to maintain the status quo, just like what they did with previous administrations. Do you think Trump will be fooled and manipulated again by Xi Jinping?

Greg Autry: I don’t think that Donald Trump is easily fooled. I do think, however, the expectations of the United States government as a whole and the financial interests that go beyond the government, and particularly, multinational corporations and investors want to see some sort of negotiation and agreement, so there was a great deal of pressure on Trump and the Trump team to at least appear that they were open to doing so. So as long as Xi said some of the right things, I think that they were required to give China, frankly, a little more leash. And we’re just going to have to just wait and find out, of course, that those promises made by Xi are false, which they always are. But, unfortunately, I think the president was in a situation where he couldn’t look like that bad guy. He had to let Xi, one more time, make a false promise. And I think the fact that Trump set a very tight deadline on it of 90 days before he upped the tariffs, and that deadline starts, not on January 1st, but it starts right now, makes it clear to me that they don’t intend to mess around with this for very long.

Simone Gao: In your recent article in Foreign Policy, you wrote, “Over the last two years, establishment pundits shifted from spouting nonsense about China’s inevitable progress toward capitalism and democracy to asking whether tariffs are the right way to confront a dangerous regime we all agree is built upon lies and cheating.” So what about that? Do you think Trump has pinned his success on trade alone, or more specifically, are tariffs the only tool or the best tool at Trump’s disposal?

Greg Autry: I think that of all of Trump’s policies, his trade policy has been the most effective. U.S. unemployment rate is at a record low. GDP growth is exceptionally high. People on the street are happy with economic performance, and just the opposite is happening in China. So he’s achieved what he wanted, which was leverage over the Chinese leadership in an economic realm using the tariffs. That said, that’s not the only tool that would be available to the administration if they wanted to pursue this further. One of the things they could do would be look at visas for Chinese executives and Chinese students. The recent arrest of a Huawei executive says to me that they’re looking very seriously at the actual behavior of individuals involved in the intellectual property theft and transfer and threats to U.S. national security. It’s also quite reasonable to assume that the U.S. will begin looking at reciprocal laws. So if Chinese organizations want to come to the U.S., they’d be forced into joint partnerships very similar to the way that U.S. companies are forced into joint partnerships often with Chinese state-owned enterprises in order to do business in the Chinese market. We could also force Chinese companies to transfer technology in order to have access to our market the same way that the Chinese government has done. And if they don’t have any technology, perhaps we could charge a market access fee where they need to essentially pay for us to develop technology if they’re going to come into our market. The fact that U.S. companies and individuals can’t really own property in China, and yet Chinese companies have been allowed to come into the U.S. and buy up real property and large swaths of land and mineral resources, which are not available to U.S. firms operating in China, we should level those rules out and prevent Chinese access to real estate, to land, and to mineral resources.

Narration: Coming up, besides Trump, what else caused Beijing to make concessions?

Part 2: Do Americans Trust Chinese State-owned Media More than the White House?

Narration: Leading up to the Trump-Xi summit, the stock market showed confidence until Dec. 4, when the Dow Jones Industrial Average suddenly fell nearly 800 points. Bond yields also plummeted. The Washington Post attributed the market downturn to the differing U.S. and China accounts from the G20 summit. The Post challenged some of Trump’s claims, saying they could not be confirmed by officials from the administration. It also quoted an anonymous former official criticizing Trump, saying, quote, “You don’t do this with the Chinese. You don’t triumphantly proclaim all their concessions in public. It’s just madness.”

Narration: MSNBC’s headline was more blunt: “Trump’s ‘incredible deal’ with China doesn’t appear to exist.”

Simone Gao: The slew of reports made me wonder if there were discrepancies in the accounts between the White House and the Chinese state-owned media. Does the American public believe the Chinese media more? I asked Mr. Autry whether they do or not.

Simone Gao: On Dec. 5, the Dow fell nearly 800 points. The Washington Post suggested it dropped because of the contradicting reports from China and the U.S. So my question is this: If there were discrepancies in the description between the two sides, are the American people really inclined to believe the Chinese side? Otherwise, why did the stock market fall?

Greg Autry: So the Chinese have a much better perception management campaign, the Communist Party has the best global propaganda system in the world. And they’re very good at making their message be felt. And, frankly, most American multinational corporations are more aligned with the Chinese interests. That’s where most of their jobs are and their products are produced. And most American investment bankers and finance folks that get quoted in the media or make donations to D.C. think tanks that produce the dominant paradigm that ends up in the financial media, these folks are all aligned with the Chinese side, and they take their messaging right from the Communist Party, and they repeat it. And that’s easy to do, and the American public is used to that and comfortable with that, in fact. But don’t assume that because you see that Dow fall significantly or the bond market adjust that that’s the American public. Most of the American public are not active traders of equities. And the ones that are, as individuals, that’s a very small amount of the market. When the market moves, it’s because investment bankers and financial professionals who are aligned with the Chinese side of things are unhappy. And so I think they’ve realized that this isn’t going to happen. And so they’ve pulled back a bit, and that shouldn’t be a surprise.

Simone Gao: Talking about the U.S. economy, a number of investors, including Goldman Sachs, predicted a U.S. recession next year. What do you think?

Greg Autry: Well, first of all, we’ve got to realize we’ve had a ten-year growth spurt, so having a recession next year would not be a surprise. There are certainly a number of indicators that many of the markets, including the real estate and equity markets, are, as we say, long in the tooth, meaning that they’ve grown for so long that a correction is to be expected. So I don’t know that that won’t happen. The yield curve and other indicators suggest that it’s entirely possible. I would hope the Federal Reserve would stop raising interest rates at this point because that has helped move us to that position. But we’re in a really strong position and, if we underwent any normal recession, it wouldn’t be a significant problem. The problem with Goldman Sachs and most of the investment banks that control a lot of the financial media opinions, their interest is only in what happens next quarter and returning short-term profits because the analysts and traders at those companies retire early, and the CEOs did help back the multinational corporations. They’re only, on average, a CEO for five years. So they want short-term results. They don’t care about the long-term interests of the United States, the long-term interests of workers, our national security, or any of those other things. And Donald Trump understands that, and I don’t think he’s going to take their opinions any more seriously than any of the other stakeholders he represents.

Simone Gao: That said, do you think a prolonged trade war with China will really hurt the U.S. economy? Or has it already hurt the U.S. economy?

Greg Autry: So far there’s no sign that it’s hurt the U.S. economy. And one of the important things is, of course, the people who make money off of the China trade have been trying to scare American consumers into believing that the prices of their goods would increase substantially, and that just isn’t true. It’s important to understand that any time a tax, a tariff, or additional cost comes into the supply chain for a product, that that cost is not just deposited on the consumers. Businesses can’t just raise the price by 25 percent and make consumers pay more. They have to deal with the reality of the economic demand curve that exists: What are consumers willing to pay and able to pay for certain goods. And the consumers will pay a small portion of it, but most of it ends up reducing the margins of the producers and the distributors in the chain. And we’ve already seen that the U.S. retailers aren’t willing to take that cost, and they’ve pushed it right back on the Chinese producers. So not only are Chinese producers seeing less demand, but they’re also getting a lot less margin for their products. So, so far, it hasn’t hurt the U.S. economy. That said, trade is a great, valuable thing, and we’d love to have more of it, I’m sure. But if trade means you get to sell 100 million or even a billion dollars worth of soybeans, but you have to look the other way while China steals 400 million dollars worth of high technology every year, that is not realistic, and we’ve got to get over this kind of anecdotal “look at that, look at this particular loss” in one market and realize that the overall scope of things has been very, very bad for the last 20 years. And with the current deficit that we run with China, if we just cut off trade with China and didn’t buy or sell them anything, American GDP would go up by about two-and-a-half percent, all other things being equal. And that’s pretty incredible. So we need to be realistic about what the overall effect is and not focus on the trees. The forest is more important.

Narration: Coming up, what’s happened since the summit?

Part 3: Moves by the U.S. and Beijing After the Summit

Narration: On Dec. 1st, the same day President Trump and his Chinese counterpart, Xi Jinping, agreed to a trade war truce, Canada arrested the chief financial officer of China’s Huawei Technologies, Meng Wanzhou. Meng is the deputy chair of Huawei’s board and the daughter of the company’s founder, Ren Zhengfei. The arrest warrant was issued by the United States a week earlier. A Canadian justice then issued a warrant on Nov. 30th. Meng allegedly committed fraud in 2013 by lying to U.S. financial institutions about Huawei’s connection with Hong Kong company SkyCom, which reportedly sold U.S. goods to Iran in violation of U.S. sanctions. Huawei is the world’s largest maker of telecommunications network equipment. In 2004, CISCO sued Huawei for using stolen Cisco technology to develop a lineup of routers and switches sold in competition to the American company. Cisco later dropped the lawsuit in exchange for a promise from its rival to modify its product lineup.

Narration: On Dec. 4th, 38 Chinese government branches published a united memo laying out an array of punishments over intellectual property theft. These measures include establishing a social credit system to target people and entities who commit severe intellectual property rights violations. The social credit score could restrict companies’ access to borrowing and state-funded support.

Narration: On the same day, President Trump tweeted, “Very strong signals being sent by China once they returned home from their long trip, including stops, from Argentina. Not to sound naive or anything, but I believe President Xi meant every word of what he said at our long and hopefully historic meeting. ALL subjects discussed!”

Simone Gao: What does all this say about the U.S.-China trade war and President Trump’s attitude towards China right now? Let’s hear from Greg Autry again.

Simone Gao: On Dec. 1st, Meng Wanzhou, Huawei C.F.O. and daughter of the founder of the company, was arrested in Canada for extradition to the U.S. What do you make of her arrest? Do you think it is related to the U.S.-China trade war?

Greg Autry: Absolutely. It, to some extent, couldn’t not be because the focus on the penalties that the U.S. is putting on China are not necessarily over the specific products on the list, but over the intellectual property theft and behavior that requires the transfer of intellectual property. And Huawei is like the poster child for stealing U.S. intellectual property and as a tool for the Chinese party to insert network infrastructure and communications infrastructure into Western countries that it can further use to inflict cyber espionage and industrial espionage on those countries. So it’s the perfect message to send. I don’t know whether the arrest was intentionally related to that, but Huawei has been a company that I identified back in 2013 when I testified to the House Foreign Affairs Committee on China cyber espionage as the primary target to look at. So I’m not surprised by that.

Simone Gao: Can America finally get what it demands from China this time? Let’s hear from Chen Pokong again.

Simone Gao: Will Xi Jinping honor his promises? Or will the U.S. meet its goals within 90 days?

Pokong Chen: For Xi and China they face two challenges: one, are they willing to keep their promises? And two, are they capable of performing their commitments? For the first, Xi is reluctant to do that. He tends to cope with Americans by delaying, stealing, and tricking. Lip service is his top option. As to his ability, that’s another question. Currently, there’s little chance for the Chinese regime to try to cheat the Trump administration again. The presence of all American hawks declares their assertiveness. Further, the lead negotiator was Robert Lighthizer, also a hawk, who served as deputy U.S. trade representative in negotiating with the Japanese 30 years ago, and who is a U.S. Trade Representative and a barrister. According to Navarro, Lighthizer will conduct reciprocal negotiations with China under “International Law” and other laws, chapter by chapter, article by article, until structural reforms. The deadline given by Trump is only 90 days. So if no deal is reached then, the trade war will go on and get escalated. For the CCP, therefore, it certainly wants to break its promises, to escape, and to delay. But I guess it’ll have great difficulty in doing so. There’s little room for Xi. Considering his breaking promises twice, a third time would bring China-U.S. relations to the brink of complete confrontation. It’s not just an issue of a new Cold War. An all-out conflict in every front, I’m afraid. The CCP would be most likely to repeat the collapse of the former Nazi Germany, militaristic Japan, and the former Soviet Union. So right now, the CCP finds itself at a critical crossroad, having to make a hard choice of where to go.

Simone Gao: Before, there was an understanding that communist China and Xi Jinping are unable to make structural changes because it would change how the Communist Party runs the economy, how it runs the country, and basically how it stays in power. So changing these would require political reform of some sort, which has always been their bottom line that can be broken. So by agreeing to these structural changes, will Xi Jinping and the communist regime really be giving up their bottom line? It is still hard to believe at this point. There is only one way to find out: time. So stay tuned to find out if Trump really will hit a home run in the U.S.-China trade war. Thanks for watching. I’m Simone Gao. Please like our Facebook page and subscribe to our YouTube channel at Zooming In with Simone Gao. See you next week.

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