Arriving in Beijing a year after my last visit, it seemed like the last thing on people’s minds was whether Xi Jinping was likely to do a “big, beautiful deal” with Donald Trump in South Korea on 30 October.
Over the weekend, the US said both countries had agreed on the framework of a potential trade deal, which would cover topics including TikTok’s US operations, China‘s rare earth minerals controls and Trump’s threats to raise tariffs on China further.
Teams from the US and China negotiated in Malaysia while Trump’s entourage was there. A deal has been drafted. So both sides, on paper at least, have something they can agree on.
But, as one Chinese think tanker explained to me, it’s now down to the “big leaders” to put their seal on the deal. And with Trump’s unpredictability, this might not be so straightforward.
Whatever is agreed – or not – could heavily impact or destabilise the world, with the two powers at the centre of global trade and influence. This includes everything from what we buy and how much it costs, to how the world deals with countries like Russia and North Korea.
I asked a Chinese friend what they were expecting, and they simply smiled and said that most people were more worried about the continuing parlous state of the housing market in the country, rather than what might happen in Seoul.
The Chinese are tough negotiators. Years ago, one of the key people on the British side working out the future of Hong Kong in the 1980s told me they were “the hardest bargainers on earth”.
As its housing market shows, China is not without significant vulnerabilities. But almost six months into the tariff spat with the US, it certainly seems more confident that it has the greater staying power and the stronger hand.
The danger is more from overplaying the hand and pushing for harder outcomes from a US that appears to be in a weaker position because of its reliance on rare metals, of which a significant amount comes from China.
China’s dependence on soya beans in return has been dealt with, at least for the moment, by diversifying supply away from US farmers.
Donald Trump and Xi Jinping at a G20 leaders summit in Osaka, Japan, in June 2019 (Photo: Kevin Lamarque/Reuters)So, could a deal be done?
A “big, beautiful deal” would need to cover three broad areas. The first is to address one of Trump’s perennial fixations: the trade deficit. Despite the last deal between the two countries in early 2020, China continues to export to the US twice as much as it buys from it. A deal where China buys more American goods is one of Washington’s key aims.
The second main objective for the US is to help it reindustrialise through Chinese investment. This is a harder ask, not because the Chinese aren’t willing, but because the US has securitised its inward investment regulations in ways that make it hard for Chinese corporates, state or non-state, to really move into this territory. Huawei, TikTok and others have all hit this barrier.
China, the world’s second largest economy and a rising outward investor, should play a far greater role in the only economy larger than it. But in this space, security and politics tend to beat out everything else.
The last issue is some acknowledgement by China of the continued leading role of the US in the global order.
This is more nebulous, but probably the most critical of all. The US these days is nervous and divided. It guards its global pre-eminence fiercely. But it is no longer willing or even able to play the same global role it has since the end of the Second World War. The US needs a framework where it can be reassured that China, despite major political differences with it, will not seek to supplant it.
This goal will pit isolationists in the US administration against the hawks, both vying for the ear of Trump.
For the former, carving the world into spheres of influence and leaving China to preside over its own region – while making sure it keeps away from the US’s – would be workable, even if that meant trouble for some of America’s allies in the Pacific and South Asia.
For the hawks, however, the aim is to contain, push back and continue to seek ways to frustrate China, with the ultimate goal of seeing its regime implode, to be replaced by something more palatable to the West.
For the isolationists, China is a distasteful but tolerable presence. For the hawks, it is an existential threat.
With so much potentially at stake, the situation when Xi and Trump enter the room in South Korea to hammer out a deal will be filled with tense undercurrents that could easily blow the whole thing up.
One of the world’s most mercurial and capricious statesmen will be facing off against the icy strategic logic of a Chinese leader for whom failure to be seen to stand up for China’s rights after decades of being marginalised is not an option.
South Korea will be a battle of fire and ice, and it will be a brave person who dismisses the appetite and will of the Chinese to prevail. Their main challenge might be to not crow too much about how well they have done until after the ink is dry and the deal with Trump is done.
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