Wed, Jan 22, 2020 - Page 9 News List

Xi’s fight with the US is only just beginning

After the signing of a ‘phase one’ trade deal, few are under any illusions that deeper tensions between the US and China will abate

By Peter Martin  /  Bloomberg

Illustration: Mountain People

In a letter read out during the trade deal signing at the White House on Wednesday last week, Chinese President Xi Jinping (習近平) asked US President Donald Trump to take steps to “enhance mutual trust and cooperation between us.”

That will not to be easy: Apart from the trade agreement, the US and China are butting heads on everything from technology to human rights to territorial disputes.

Just last week, US Secretary of State Mike Pompeo told executives in Silicon Valley that the US is “facing a challenge from China that demands every fiber of your innovative skill and your innovative spirit.”

A return to acrimony could have major consequences for China, and for Xi.

In the short term, renewed tensions with the US risk weakening an already fragile economic situation, while investment restrictions could hamper plans to secure technologies essential to driving growth. For Xi, a perceived failure to manage US ties could also dent support for a third term in office at a key Chinese Communist Party (CCP) meeting in 2022.

“This is China’s most important bilateral relationship by a country mile, and Xi Jinping has made it clear that he’s in charge from the beginning,” said Trey McArver, cofounder of Beijing-based research firm Trivium China. “He’s under pressure to do a good job, because if he doesn’t, it opens him up to criticism that he’s not a good statesman and not a good steward of the nation.”

Early on, Xi himself defined the terms of a successful relationship. Even before taking the top job in 2012, he called for a “new type of great power relations” that would see the two powers respect each other’s “core interests” and abandon a “zero-sum” mentality.

Just days before Trump took office in 2017 after campaigning on an “America first” platform, Xi sought to claim the mantle as a defender of free trade by preaching “openness” and “economic liberalization” at the World Economic Forum in Switzerland.

Later that year, he declared that China was “approaching the center of the world stage” as he outlined a road map for turning the country into a leading global power by 2050.

However, Trump sought to thwart those plans. His move to raise tariffs has disrupted China’s export-led economic model, accelerating a shift in global supply chains as lower-cost manufacturers look for cheaper places to set up shop.

It also opened the door for his administration to blacklist Huawei Technologies Co and other burgeoning Chinese tech companies that still rely on US firms for vital components.

“If you go back five, six, seven years, in 2019 they say China was going to catch us as the world’s largest economy,” Trump told supporters at a rally last month. “Guess what? They’re way behind. They’re way behind.”

For Xi, the “phase one” deal reached last week helps stop the bleeding on the trade dispute.

While he has struck an optimistic tone along with other Chinese officials, the text of the deal itself speaks to the wide gap between the world’s biggest economies. Its limited scope, highlighted by huge agricultural and energy purchases, defers tougher issues such as Beijing’s controversial state subsidies, industrial policies and state-owned enterprises.

Compromise on state-owned enterprises is likely to prove difficult because they are an “organic component of China’s political and economic governance,” said Wang Peng (王鵬), an associate research fellow at the Chongyang Institute for Financial Studies at Renmin University in China.

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