Trump is itching to surrender to China on trade


We have seen this streaming drama before. President Donald Trump has a strong impulse — say to withdraw US troops from Syria, or declare an emergency on the Mexican border. He reluctantly submits to contrary advice. The cycle repeats, rinses and washes a few times before Mr Trump loses patience. Then he does what he always wanted — trusts his instincts above those around him. That is what is now happening on China. Mr Trump wants a trade deal that will buoy the stock markets. His advisers want to hang tough in talks with Chinese leader Xi Jinping, even at the expense of short-term US growth. It is a matter of time before Mr Trump overrules them. The question is how much face America will lose when he does.

The answer is a lot. Mr Trump is the mirror image of Theodore Roosevelt, the US president who said America should speak softly and carry a big stick. He has promised the moon on China but seems poised to accept a modest chunk of meteorite. Mr Trump’s end goal was to reduce China’s surplus with the US, which is on course for the first time to exceed $400bn this year. His administration’s goal was to force China to agree to a level playing field in technology. The two goals are very different. Mr Trump wants a headline that would boost his short-term bragging rights. The rest of his administration — and the broad global consensus — wants to ensure China makes deep structural changes to its system.

Mr Trump has little interest in the patient work of negotiating changes, good or bad, that do not show up on his electoral radar. The result is a deep split within his administration. The main casualty is Robert Lighthizer, Mr Trump’s hawkish trade representative, whose life’s work is to make China alter course. His only counterpart was Jim Mattis, the former US defence secretary, who resigned in December after Mr Trump said he would withdraw all US troops from Syria. The two men stood out in Mr Trump’s cabinet for possessing the authority to push back on the president. Mr Lighthizer has forgotten more about trade than Mr Trump will ever know. They are now airing their disagreements in public.

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Last week Mr Lighthizer publicly corrected Mr Trump’s definition of a memorandum of understanding, which the president said was not a binding trade deal. Mr Trump had confused a real estate MoU with what it means in trade parlance. On Wednesday, Mr Lighthizer raised the stakes higher. He told Congress that the US would only accept a trade deal with China that was deep, structural and enforceable. Otherwise there would be no deal. “Don’t go for the soyabean solution,” he said. “This is our one chance.” But China agreeing to buy more US soyabeans, and other commodities, is exactly what Mr Trump is seeking. This would assuage the pain of US farmers in key mid-western swing states. It would also reduce the US trade deficit, albeit temporarily.

Which approach is likely to prevail? Ultimately Mr Trump always wins, even if America does not. The US stock market’s reaction to Mr Lighthizer’s testimony increased the chances Mr Trump will lose patience sooner than later. Equity prices dropped sharply the moment Mr Lighthizer began to speak. It is possible that what Mr Trump agrees with Mr Xi when they meet in Mar-a-Lago in March will be a short-term truce only. China has a spotless record of reneging on deals. The agreement is likely to include “snap back” provisions that allow the US to re-impose tariffs on China. Even so, Mr Trump will have surrendered a moment of acute leverage. Another few years of enforced technology transfer could be all China needs to take the lead in the race to dominate artificial intelligence.

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Two other consequences are apparent. First, Mr Trump has opened the space for Democrats to say that he is soft on China. Having partly been elected because of his tough China rhetoric, Mr Trump has made it the bipartisan consensus. Second, Mr Trump’s credibility as a negotiator would plumb new depths. Those limits have already been tested this week in his failed nuclear summit with North Korea’s Kim Jong Un. It is wise when negotiating with Beijing to read strategists Sun Tzu or Carl von Clausewitz. Forewarned is forearmed. Mr Trump seems to prefer the Grand Old Duke of York, who marched his men to the top of the hill only to march them down again.

edward.luce@ft.com



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