President Trump Has China Over a Barrel

July 1, 2019 Updated: July 3, 2019

Commentary

President Donald Trump has his Chinese counterparts right where he wants them.

It’s an uncomfortable position for the Chinese, who have, for all intents and purposes, been “running the table” when it comes to both Democratic and Republican administrations of the past 30 years.

While the president’s meeting with Chinese leader Xi Jinping during the G-20 Summit in Japan didn’t produce a final agreement, it did expose the fundamental weakness of China’s position, enabling Trump to reopen the stalled negotiations. The magnanimous gesture will likely give the United States an edge in the next round of talks.

China, with its economy far more vulnerable than Beijing would like to acknowledge, is desperate for a deal that removes the punishing counter-tariffs that Trump imposed in retaliation for China’s decades of trade cheating. The Chinese economy is reeling from the strain of the tariffs, and Xi’s situation has only gotten worse since his negotiators reneged on commitments made during U.S.–China trade negotiations. Consequently, Trump was forced to put the discussions on hold and impose a new round of tariffs.

The United States has also taken an increasingly tough stance against Chinese technology giant Huawei, banning the sale of sensitive technology to the company and lobbying U.S. allies not to purchase Huawei’s 5G technology, because of national security concerns. Already, Huawei is expecting to lose around $30 billion in revenue as a result of the U.S. pressure campaign.

The long-awaited meeting between Trump and Xi at the G-20 Summit was seen as an opportunity to break the impasse. In an unprecedented move signaling its renewed commitment to good-faith negotiations, a chastened China made a massive purchase of U.S. soybeans before the meeting even began.

This was a naked bribe designed to appease Trump ahead of the trade meeting, not a standard commercial transaction. China’s demand for soybeans has actually dropped recently because of a swine flu epidemic that devastated its hog herds, and experts say the country has ample reserves of soybeans.

Coupled with Xi’s public appeals for the United States to lift the restrictions on Huawei, the soybean purchase was a strong indication that Trump was entering the meeting with the upper hand.

He played his cards well, postponing the next round of planned tariff increases while trade negotiations get back underway, during which time China has agreed to make additional large purchases of U.S. agricultural products. Meanwhile, the United States will allow limited sales of nonsensitive technology to Huawei as a reminder of how much China has to gain from—and of how much its economy depends upon—a fair and open trade relationship with the United States.

Significantly, the president also made it clear that he is in “no hurry” to reach a comprehensive bilateral agreement. He knows that China is hurting, and that the United States will get better terms by making the Chinese government squirm for a little longer.

Freezing the next round of tariff increases was a particularly brilliant play, because it has reassured skittish investors who don’t fully comprehend the president’s negotiating strategy. Inasmuch as stock market jitters represent the only real short-term pressure on the U.S. side to make a deal, this should give the Trump administration’s negotiators a great deal more breathing room.

Their Chinese counterparts, on the other hand, will have to conduct future negotiations with the threat of tariffs on $300 billion worth of Chinese exports hanging over their heads like the Sword of Damocles.

Trump has deftly maneuvered China into a corner during the past two years, and his meeting with Xi during the G-20 Summit offered confirmation that he has the Chinese negotiators right where he wants them. I forecast that we will continue to see progress from the president’s comprehensive understanding of China’s economic vulnerabilities, and that this progress will produce long-term benefits for the United States and our allies.

Lt. Col. Tony Shaffer is a retired senior intelligence operations officer and president of the London Center for Policy Research.

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