US President Donald Trump and his Chinese counterpart, Xi Jinping, will finally settle in for their much anticipated 90-minute lunch tomorrow at the G20 meeting in Osaka, Japan, to discuss trade tensions and other geopolitical issues surrounding Sino-US relations.
** From what we understand, Trump will be looking to de-escalate trade tensions with China, despite his recent threats in the press of a potential 10% tariff on the remaining non-tariffed $300 billion of imports from China as a “Plan B that is maybe my Plan A.”
** In practice, that would represent a moratorium on additional hikes, but no rollback yet of current tariffs. China’s Vice-Premier Liu He, at a politburo meeting in advance of Osaka, also indicated this to his colleagues as a most likely outcome.
** While yet to be determined, we also suspect a truce on additional tariffs, to allow negotiations to proceed, this time around may not come with a tight deadline, as was the case with the truce last year after the Argentina G20 summit.
** That said, sources close to Trump note that the President does, deep down, view some level of tariffs as not just an equalizer for unfair practices, but also as a significant source of revenue to whittle down the national debt, even as admittedly at least some portion of the cost of tariffs are borne by US consumers.
** As to Beijing’s position going into the lunch, recent media reports that Xi would set as preconditions for additional talks the rollback of existing tariffs, removal of US sanctions on Huawei, and a lowered trade import target, appear to be off the mark in that while these are negotiating objectives, especially and most immediately Huawei, they do not represent pre-conditions of any sort.
** According to sources involved in Beijing’s preparations for the meeting, the goal of the Xi-Trump meeting will simply be to de-escalate bilateral tensions, although none expect a more significant outcome than to “inject impetus into trade talks.”
** Xi, in talks with Trump as well as other counterparts, will reiterate China’s “commitment to international cooperation, opposition to protectionism, and the protection of the existing international economic order.”
** In his bilateral with Trump, Xi will also attempt to broaden the focus from trade alone to broader and “more sensitive issues,” including the US restrictions on Huawei and the overall trend of US-China decoupling, and will warn of the influence of the “extreme right” in Washington.
** Xi may, from what we understand, go so far as to attempt to persuade Trump to drop US demands to extradite Huawei CFO Meng Wanzhou from Canada. The Huawei matter appears to be elevated to one of the more immediately sensitive negotiation points, and indications from sources are that Beijing will hold the expansion of its “unreliable entities list” as a bargaining chip in that dispute.
** In addition to trade and economic issues, Xi will look to emphasize China’s firm position on Taiwan to Trump, as well as on the South and East China Seas. On the more constructive side, Xi will offer to intercede not only with North Korea, as widely expected, but also with Iran, and even with Afghanistan, where China will offer to mediate between the Taliban and the government in Kabul.
** Indeed, in the run-up to the G20 meetings, Xi met with not only North Korea’s Kim Jong-Un, but also with Iran’s President Hassan Rouhani and Turkey’s Recep Tayyip Erdogan. Less high profile but just as interesting were visits by Syria’s Deputy Prime Minister and Foreign Minister and the Afghan Taliban’s Political Chief to Beijing.
In the big picture, Chinese sources are quick to stress that Beijing, twice embarrassed and burned by Trump, is placing less importance on this meeting than it did on the Argentina summit last year with Trump.
Sino-US relations have clearly deteriorated since last December, and there is no illusion in Beijing about the US strategy to contain China not only in trade, but also in hi-tech, in its Belt and Road Initiative efforts, Taiwan, the South China Seas, and other areas of sovereign expansion.
Indeed, China and the US have fundamentally different positions on Iran, North Korea, Venezuela, Syria, the Arctic, and other areas around the globe. Trade tensions are merely one facet of this rivalry.
Nevertheless, it is increasingly clear, as markets seem to have come around to expect, that both sides will use the occasion of the G20 meeting in Osaka to call a truce on tariffs, and re-start negotiations, at least for now.