Did Xi School Trump in the Art of the Deal?

President Trump seems to be feeling pretty good about himself right about now. He and Mrs. Trump were accorded the highest honors and warmest welcome in China. His hosts attended to every last detail of the visit to ensure the U.S. president had the opportunity to bask in his importance and appreciate just how highly regarded he is by China’s leadership and people. Then, in a gesture of deference to Trump’s business acumen, negotiating savvy, and commitment to results, Chinese President Xi Jinping gave the president a bill of business in the neighborhood of $250 billion—a pretty good haul by most standards.

In return, Trump lavished praise on Xi, expressing gratitude for his hospitality, admiration for his stewardship of Chinese society, and apologies for mistakenly blaming Beijing’s trade policies for the bilateral trade imbalance when the real culprit, after all, has been U.S. policies and previous administrations that let the relationship “get off kilter”: 

Our meeting this morning, in front of your representatives and my representatives, was excellent, discussing North Korea – and I do believe there’s a solution to that, as you do; discussing trade with the United States, knowing that the United States really has to change its policies because they’ve gotten so far behind on trade with China and, frankly, with many other countries.

And I have great respect for you for that, because you’re representing China. But it’s too bad that past administrations allowed it go get so far out of kilter. But we’ll make it fair, and it will be tremendous for both of us.

My feeling toward you is an incredibly warm one. As we said, there’s great chemistry, and I think we’re going to do tremendous things for both China and for the United States. And it is a very, very great honor to be with you. Thank you very much.

The hosting of the military parade this morning was magnificent, and the world was watching. I’ve already had people calling from all parts of the world. They were all watching. Nothing you can see is so beautiful.

So I just want to thank you for the very warm welcome, and I look forward to many years of success and friendship, working together to solve not only our problems but world problems, and problems of great danger and security. I believe we can solve almost all of them and probably all of them.

There is something to be said about the importance of good rapport between world leaders, but perhaps of much greater value is understanding the Chinese faculty for making flattery an art form.

My initial reaction to the reported outcomes of the meetings in Beijing was that Trump got played by Xi. After all, Trump’s a fairly easy read. He likes pomp. He likes praise. He’s fascinated by parades. He believes bilateral trade balances reveal whether trade policy has succeeded or failed. And he’s confident that he has what it takes to make trade flows adhere tightly to the script of a business contract. In buttering up Trump and sending him home with $250 billion worth of purchases and investments, Xi hopes to have put his trade problems with the United States behind him.

Chinese leaders have gone to that well many times before. What better way to respond to U.S. gripes about the trade deficit than agreeing to buy a couple dozen Boeings?  As I explained to a Chinese journalist yesterday–who sat before me, incredulous at my suggestion that Xi’s actions wouldn’t solve the problem–Americans are skeptical of big business deals conducted at the highest levels of goverment. That a U.S. president would negotiate by proxy on behalf of particular U.S. businesses reaks of crony capitalism. And, furthermore, that such buying decisions can be made with the swivel of a pen by one guy in Beijing reinforces for Americans that the Chinese economy is centrally planned and operates according to non-market principles. That makes it easier for Amercians to view China as a nemesis, and to show less resistance to protectionism directed at China.

Realistically, Xi bought a quarter of a trillion dollar insurance policy–leverage he may need to soften emerging U.S. policies, including trade and investment restrictions. By promising Trump all of this business, Xi can be sure the U.S. president is well aware of the costs of a more strident U.S. economic policy toward China. What Xi giveth, Xi can taketh away. Even so, I think Trump understands what’s going on.

Unless some serious policy changes are made to fix the structural problems afflicting the relationship, frictions over trade and investment policy will worsen. Those who think China’s full cooperation with Trump on North Korea will expunge U.S. trade policy demands have not sufficiently hauled in that the security hawks in Congress are ascendant and that the U.S. intelligence community considers China’s inexorable quest for technological supremacy to be America’s next most important security challenge.

In February 2017, I explained why a U.S.-China trade war is more likely now that at any time in the past. The safeguards that had kept the train from derailing for three decades had fallen into disrepair. Then, in July I wrote about the ongoing, cybersecurity, high-tech trade battle that would likely spark a full-fledged, gloves-off, tit-for-tat trade war. The machinery has already been mobilized to effect this outcome. The Trump adminisration launched an investigation into China’s alleged forced technology transfer policies and other forms of high tech intellectual property theft earlier this year. Affirmative findings that lead to unilateral sanctions against China (i.e., in circumvention of U.S. obligations to follow WTO protocol) would be provocative and would be likely to incite reprisals against U.S. exporters and U.S. companies in China.

Meanwhile, there is an emerging bipartisan consensus in Congress that prospective Chinese acquisitions of U.S. technology companies need much greater scrutiny, and that thresholds for blocking such acquisitions should be lowered. Legislation spearheaded by Sen. Jon Cornyn (R-TX), which would broaden the authority of the Committee on Foreign Investment in the United States to stop nearly any deal that might result in technology transfer to China, was introduced in both chambers this week. It could become law this year.

Beyond these very difficult technology, intellectual property, and cybersecurity issues, there are many other unresolved problems in the economic relationship.  One potential solution, which hasn’t received enough attention (and has too often been dismissed as a political impossibility), is for both Washington and Beijing to catologue all of their gripes, all of their issues, and put them on the negotiating table. Whatever the political obstacles may be, the costs of not pursuing a U.S.-China bilateral free trade agreement could soon be all of our biggest regrets.