Stephen Yates: Trump Plays Dominant Hand in Trade War via Tweet

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President Trump has an unmatched ability to say a great deal in very short snippets on Twitter. True to form, on January 21, he served a very strong volley to Chinese leader Xi Jinping, tweeting: “China posts slowest economic numbers since 1990 due to U.S. trade tensions and new policies. Makes so much sense for China to finally do a Real Deal and stop playing around.” There is a great deal to unpack in this short tweet, but all worthy of discussion.

“CHINA POSTS SLOWEST ECONOMIC NUMBERS SINCE 1990 DUE TO U.S. TRADE TENSIONS AND NEW POLICIES.”

There have been many times over the last 40 years where China’s economy has been weak, but in all those years this is the first time any US President publicly exposed their weakness. President Trump is doing several strategically significant things here. First, he places the United States in a position of dominance over China. The US economy is on the rise. The Chinese economy is sinking. Step one in establishing a stronger negotiating position.

But Trump goes further. Noting this is the weakest China’s economy has been since 1990 is a significant loss of face to Xi. In 1990, China’s economy was hit by international sanctions as well as needed macroeconomic adjustments to control the rapid inflation that was among the factors fueling the protests in 1989. I’m sure Beijing appreciates the reminder about the Tiananmen protests and massacre. I certainly do. But after noting that Xi’s growth rate is down to a 30 year low, Trump credits his policies with putting that pressure on Xi. Step two in establishing negotiating dominance.

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If Trump and Xi were in a wrestling match, this line is Trump essentially saying you are pinned to the mat because of me and whether you get up off the mat is up to me. Bold.

“MAKE SO MUCH SENSE FOR CHINA TO FINALLY DO A REAL DEAL”

Having put Xi in an uncomfortable position, substantively and publicly, Trump then offers an olive branch. ‘Let’s make a deal, and I can ease the pressure.’ No one knows for sure what President Trump has in mind, or defines a real deal. But there are a few things we can assume he seeks. Based on experience so far with other trade negotiations in this administration, any agreement with China must be seen to be favorable to the United States. Trump will want to be seen by voters as having delivered real results. Especially with an upcoming presidential election, Trump will be looking for a deal that benefits industries in many of the states that comprise his base – agriculture, steel, manufacturing, and the like.

But above all what President Trump seems to be saying is China needs to do much better. When meeting with President Xi at the G20 summit in Argentina, President Trump agreed to hold off on raising tariffs from 10% to 25%, with the intention that China and the United States would reach a deal regarding intellectual property theft, forced technology transfer and trade. It’s up to China to make substantive progress, which has yet to happen.

“STOP PLAYING AROUND!”

No world leader has ever talked to China this way. What he is saying is the Chinese negotiators have been treating the process to this point as some sort of conventional game. Trump isn’t going to negotiate in a conventional way. His diagnosis, with which much of our country agrees, is that the conventional negotiating approach is exactly what led the Chinese to believe they could get away with so much for so long at our expense. And President Trump is calling them out for it. In the near term, this tactic may not yield significant results, as it will be hard for the Chinese to swallow. However, should the President keep it up, it will likely prove effective in the long term.

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CONCLUSION

Overall, I believe President Trump is pressing for a near-term deal on a framework that commits the Chinese to a larger deal after his re-election. The more economic pressures on Xi mount, the more likely it is that a more serious deal will be forthcoming, and sooner.

Any deal though, even a short-term one, will be a win for President Trump. Should Trump win re-election, he will see that as a mandate to press even further on negotiations with China. For China’s part, it may seek to buy time (literally, with promises of large agricultural purchases), with perhaps the hope that a more “reasonable” US president wins the election in November of next year. In the meantime, President Trump will continue to do what he has been doing: criticize China where they deserve it, and always seek the best possible outcome for American businesses and the American people.

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