The US is preparing for a trade war with China – don’t be fooled by the noise

Scott Kennedy says America’s new tools to exert regulatory pressure on China weren’t ready when Donald Trump touched down in Beijing, so he brought out the gongs to distract the world audience. But all-powerful Xi Jinping may have other ideas

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The Trump administration has been moving systematically to put the regulatory pieces in place so it can credibly threaten China with limits on its exports, investment and other elements of the relationship. Illustration: Craig Stephens

Published: 5:38pm, 21 Nov 2017Updated: 12:58pm, 23 Mar 2018

On the first day of his recent visit to Beijing, President Donald Trump was treated to Peking opera. A common element in many such shows is moments when characters run about the stage wildly banging gongs to draw the audience’s attention, even though nothing of substance is occurring. And so went the US president’s summit with China’s Xi Jinping on economic and trade issues, a perfunctory display meant only to give the impression of serious engagement and achievement.

Some American observers believe Xi won this affair on both style and substance. The two sides inked US$250 billion in deals, and Trump appeared to let Xi off the hook for China’s persistently large trade surplus with the US, when he placed the blame instead on America’s previous weak-kneed leaders.

There was widespread relief among Chinese businesspeople and officials I met this past week. They almost uniformly believe that the commercial agreements and personal camaraderie mean the relationship has been stabilised: thanks to the emergence of Trump’s true self as a deal maker, the education he has received from the American political and business establishment, and China’s own beneficent patience.

Donald Trump joins Xi Jinping in the Forbidden City

Nothing could be further from the truth. My sense is that we are on the cusp of a new American strategy in which Washington replaces dialogue and multilateralism with extended unilateral pressure.

We are on the cusp of a new American strategy which replaces dialogue and multilateralism with extended unilateral pressure

This U-turn was possibly solidified in July, when the latest round of high-level bilateral dialogue failed to yield anything of value.

Since then, the Trump administration has been moving systematically to put the regulatory pieces in place so that it can credibly threaten China with limits on its exports, investment and other elements of the relationship.

These tools were simply not ready by the time Trump descended from Air Force One in Beijing, and so out came the gongs to distract the world audience. And Trump would certainly feel within his rights to pocket these deals without giving China any reassurances, since that is the administration’s view of how China plays ball.

That is the only rational way to explain what did and did not happen in Beijing. A careful perusal of the list of deals shows not a single one is in a sector previously closed off to American business. Apparently, some deals that would have paved new ground were vetoed for inclusion in the signing ceremony.

When a Chinese official announced that China had loosened investment restrictions in its financial sector, which the US had been seeking for over a decade, Trump had already jetted off and did not even send a stand-in from the embassy or a thank-you note.