Will Xi Offer Trump A Small Victory On Trade As Cover For His Longer-Term Ambitions

On Monday, Trump pressed Japan’s Prime Minister and business leaders to reduce the $69 billion trade deficit. A couple of badly made jokes, awkward moments and an unfair singling out of the auto industry later, we expressed our scepticism that the Japanese would do anything after he left (see “Trump Says Trade With Japan Is Not Fair And Not Open – Awkward Moments Ensue” here).  Today Trump touched down in Beijing for two days of meetings, including eagerly awaited talks with China’s greatest leader since Mao, Xi Jinping. The schedule includes a visit to the Forbidden City and a state dinner. During the press conference in Tokyo on Monday, Trump assured reporters that he has an “excellent” relationship with Xi (they all are), while expressing his determination to reduce the $327 billion trade deficit with the Middle Kingdom. Vowing to take “very, very strong action”, Trump stated.

“It has to come down…And that has to do really with free trade, fair trade, or reciprocal trade. And frankly I like reciprocal the best of the group.”


As the moment of truth approaches, the rhetoric on the Chinese side suggests that progress is a possibility. As Bloomberg notes.

When Donald Trump lands in Beijing...intent on tacling one of his biggest irritations - the trade deficit - he could get help from an unlikely source: his hosts. In contrast to Japan, China is raising expectations that there is a way forward. Its ambassador told reporters in Washington late last month to expect “significant outcomes.”


Xi told a group of U.S. executives in Beijing - including Apple Inc. Chief Executive Officer Tim Cook and Facebook Inc. founder Mark Zuckerberg - that he was looking forward to Trump’s visit and that his nation is embarking on reform with "unprecedented determination and vigor." This is encouraging after the US Commerce Department angered China last month by labelling it a non-market economy with “fundamental distortions” due to the interventions of the state. This allows the US to charge higher, anti-dumping duties under WTO rules on Chinese products sold below fair market value. Even more encouraging, China has detailed the actions it will take to reduce the $327 billion trade gap.

In response to questions from Bloomberg about how China will reduce the trade gap, Commerce Minister Zhong Shan replied with a list of measures. In summary, Zhong denies that China seeks to maintain a trade surplus and states that China will open its markets to increased imports using fiscal and other initiatives. One initiative is the launch of the China International Import expo (CIIE) on 5-10 November 2018.

Below is the section “How will China address the trade surplus with its partners?” from Zhong’s reply (see here for the full text).

In recent years, China has sped up the implementation of active and effective import policies and introduced a number of policy documents to boost imports. It has effectively adopted a host of substantial measures to expand imports with fiscal and taxation policies, finance, streamlined management and an enhanced level of liberalization.

Such measures will be continued as follows: First, gradually reducing import tariffs. The general tariff level of China has decreased from 15.3 percent before its WTO accession to 9.8 percent at present, much lower than the average tariff of 46.6 percent for developing countries. China has signed 15 free trade agreements, covering 23 countries and regions. More than 90 percent of product varieties enjoy zero tariff, involving over one-fourth of China’s total imports and exports.

Second, improving fiscal, taxation and financial policies to expand imports. We will reduce tariffs on some daily consumer goods and import more consumer goods to optimize the import structure. We will also adjust the Catalog of Technologies and Products Encouraged for Import and encourage banking institutions to offer more support in import credit to expand the import of advanced technologies, equipment and key components.

Third, balancing supply and demand and promoting trade facilitation. We will step up customs clearance integration and improve inspection and quarantine systems to increase the level of trade facilitation.

Fourth, reforming and optimizing the management of imports. We will streamline administration, delegate power, strengthen regulations and innovate administration models to better manage and serve imports.

Fifth, improving the import promotion system. We will come up with new import models and advance parallel import of automobiles.

US and European leaders have become more and more frustrated with the glacial pace at which China has been opening up its markets. In “Trump and Xi Joust For World Economy Crown” here, Bloomberg believes that “progress” will likely benefit US investment banks more than the US manufacturing sector which Trump championed in his China rhetoric before the election.

Trump, who’ll be accompanied by business leaders eager for deals…That gels with his campaign pledges to return manufacturing jobs to the U.S., including reviving industries like coal mining and steelmaking. “Xi’s model is to build an economy that looks more like America’s, and Trump’s is to build an American economy that looks more like China’s has been,” said Hugh White, a professor of strategic studies at the Australian National University in Canberra and a former intelligence analyst and senior defense official. “Xi’s increasingly focused on China’s economy expanding into high-tech and high value-added jobs and letting other people mine the coal and make the steel. Trump’s model of course is just the opposite.”

So far, the Trump presidency has been a positive for China’s economy as low U.S. unemployment and slow-to-no progress on tariffs has supported a return to growth for China’s exports, while a weak dollar for the first three quarters of the year was a boon for the yuan, said Bloomberg Intelligence Chief Asia Economist Tom Orlik. "In an optimistic scenario, Trump’s appetite for tweetable wins and China’s longer-term focus could coalesce around financial market opening -- a boon for the U.S. investment banks, and a support for China as it attempts to tame its credit boom," Orlik said.

Orlik might have a point, but our suspicion is that Xi’s plan is to offer a “victory” to Trump with regard to reducing the trade gap, but only a small one.

Meanwhile, China will continue with its longer-term “Mackinder-esque” plan to integrate the Eurasian continent via its “One Belt, One Road Plan” and undermine the dollar by accumulating gold and steadily increasing non-dollar trade. If it wasn’t for the small matter of China’s horrendous credit bubble, the US would have an even weaker hand.


falak pema Wed, 11/08/2017 - 15:47 Permalink

A fig leaf for a boondoggle of MAGA !That chart says it all.The Duck has to make an enemy of every trading partner that the global mantra of past american "exeptionalism" has spawned! Some head up ass belly dance.

Endgame Napoleon falak pema Wed, 11/08/2017 - 19:16 Permalink

It was not just the USA that opposed China’s New Silk Road plan, emphasizing more exports, when they have already run up huge, unfair trade deficits with other countries. Indian leaders said it was only good for China. Maybe, Chinese leaders see that it is not in their interest to tank the middle class in other countries. I guess it is possible, but the proof will consist of a greatly reduced trade deficit, not just publicity.

In reply to by falak pema

Winston Churchill Stuck on Zero Wed, 11/08/2017 - 16:51 Permalink

There speaks a man that never ever filled in a VAT returnA no nothing self appointed exspurt.The VAT at the border is only non deductable if you are a consumer and non VAT registered.For any business it is a cash flow issue only,its deductable from any output VAT due,or is refundable if yourbusiness has a 0% band product.Are you related to Mosley ?Don't let the facts get in the way of your narrative.IMO the BAT is just the precursor to a nationalVAT in the USA.Be carefull what you wish for,you'll get it,good and hard.

In reply to by Stuck on Zero

wisehiney Wed, 11/08/2017 - 15:45 Permalink

“We’re going to win. We’re going to win so much. We’re going to win at trade, we’re going to win at the border. We’re going to win so much, you’re going to be so sick and tired of winning, you’re going to come to me and go ‘Please, please, we can’t win anymore.’  You’ll say ‘Please, Mr. President, we beg you sir, we don’t want to win anymore. It’s too much. It’s not fair to everybody else.’” Trump said. “And I’m going to say ‘I’m sorry, but we’re going to keep winning, winning, winning, We’re going to make America great again.”

Grandad Grumps Wed, 11/08/2017 - 15:49 Permalink

To increase the total global economy, some country has to act as the consumption whore. The US is it. Without a consumption whore, there is no globaliation... no global debt servitude and no global control.

Gorgeous Grandad Grumps Wed, 11/08/2017 - 19:03 Permalink

"his biggest irritations - the trade deficit..."So irritated we may reduce it from $270B to $268B?  I know, maybe we can get them to adopt the ChiComDollar. Similar to the petro dollar, except they agree to reinvest our $$ we pay for their plastic crap into $$ denominated instruments, and....in return....we help them defend the Spratlys.   

In reply to by Grandad Grumps

jin187 Wed, 11/08/2017 - 15:51 Permalink

China and the US are too intertwined to make any serious changes. It's not like we're gonna cut them off, fire up our factories, and have all these unemployed former factory workers making shirts and shoes again any time soon. It would be more likely to cause mass shortages, layoffs for low level white collar jobs, and a Chinese economic collapse.

China owns too much of our debt to sabotage the dollar. They depend too much on that trade deficit for their economy, and we depend too much on those imports now. We're like two criminals that just pulled a heist. We each know too much to be safe, but getting rid of the other guy isn't an option.

BritBob Wed, 11/08/2017 - 15:58 Permalink

China – Argentina – the FalklandsIn tune with Macri's words, Xi Jinping thanked Argentina "the support they have given us for our claim of a single China as we support theirs for the Falkland Islands."  (Telam 17 May 2017)Suppose China didn't take territory in the 19th century? Google: ''Falkland Islands – The Usurpation'' (1 pg) to see why Xi's supporting a lame duck. https://www.academia.edu/34838377/Falkland_Islands_The_UsurpationXi's good at rhetoric 

lester1 Wed, 11/08/2017 - 16:07 Permalink

How the fuck do we have trade deficits with Germany and Japan who have lots of unions, lots of government regulations, and high taxes ???? Can anyone explain this to me?...

Mimir lester1 Wed, 11/08/2017 - 16:27 Permalink

Simple: "lots of unions, lots of government regulations" ensures relative higher productivity of a highly qualified and motivated working force within a welfare state (high taxes) - and they work lesser hours and have more holidays. High quality European products (for example cars) do not come from miracles.

In reply to by lester1