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How Trump bundled China with North Korea
The Trump administration is increasingly viewing China as its nemesis and the trade conflict is just saber rattling

As Trump once put it: “I don’t want them to know what I’m thinking.”
 
In a matter of weeks, President Trump has been quite skittish in changing his position back and forth on a potential summit with North Korea and negotiating a trade deal with China. For Trump, the boundaries between geopolitical affair and trade issue muddled, with nothing exempt from being bargained away if necessary.

When meeting with South Korean President Moon Jae-in, Trump suggested China might be to blame for the change of tone from North Korea after Kim Jong Un's second exchange with Xi Jingping. Since Trump views China as the de facto suzerain of North Korea, Kim's threat of withdrawal from the summit must be attributed to China's maneuver behind the scene and in order to get North Korea back on track, Trump has to placate China on trade issues and put the tariff on the backburner.

As a tradeoff for China’s support on North Korea, Trump first offered to help loosen restrictions on ZTE's import of US components, when China's Vice Premier Liu He visited Washington, Trump met with him in the White House which didn't happen last time and the two sides agreed to put the trade war on hold without China making any numerical commitment.

But plans go awry, after President Trump pulled out of his scheduled June 12 summit with Kim Jong-un, the North Korea has gone soft and eager to restore the process and Mr. Trump has since expressed more optimism about the meeting and less worried about Beijing’s ability to disrupt a potential summit with North Korea. Negotiators from Washington and Pyongyang have scrambled to reinstate it, giving Mr. Trump a greater leeway to resume his tough approach to its economic arch rival. On Tuesday, Trump unexpectedly reversed course and declared that the United States would impose tariffs and other punitive measures on China in default of their just-concluded agreement.

Trade Brinksmanship

Trump is said to view foreign policy in a way of Gambling, rife with inscrutability in order to give him a leverage and keep adversaries off-balance. But the charade is sometimes causing devastating confusion in the administration and undercutting its credibility. When it comes to trade conflict with China, the president thought this tactic could set off a sense of crisis and then lure more concession from China. But the Trump administration is so plagued by schizophrenia with contradicting political forces vying for influence. It will be very hard for China to see what the US really want and make substantial moves in future negotiations.

The divisions within the administration is focused on whether the United States should try to secure a short-term deal with China that would balance interest of the Wall street and avert a potential trade war, a path that Mr. Mnuchin prefers, or whether they should pressure China to make more fundamental changes to its economy to allow more market access and better IPR protection for US companies, a path that Mr. Navarro and Mr. Lighthizer say is preferable. In the last round of talks, Mr. Mnuchin seemed to gain an upper hand by declaring a truce in trade war, only to be thwarted by the reimposed tariffs. Stung by criticism that the administration has gone soft on China by the Congress and need to prepare for the mid-term election, right now, the scale seems to tip in favor of hardliners like Mr. Navarro.

For this weekend, a US negotiation team led by US Commerce Secretary Wilbur Ross will arrive in Beijing and they are expected to pressure China to allow US companies to hold majority shares in joint ventures during the weekend round of talks, according to Larry Kudlow, a senior economic adviser to Trump. The issue of equity ownership has largely been sidelined in previous rounds of talks. For US companies, majority stake means they can have control over their intellectual property rights and will not be forced to transfer technology as a premise for entering into a joint venture.

However, it's very unrealistic to think China will adopt radical reforms under US pressure. With its growing middle-class market demanding high quality products and service and its national strategy for a growth model driven by innovation, it's in China's own interest to import more from the US, grant more market access to foreign investors and protect intellectual property rights. But the process will be gradual and on its own terms rather than yielding to US pressure, especially given Trump's inconsistent approach towards China.

The Thucydides Trap

Shortly after the tariff was imposed, Spokesman from Chinese government berated the move as tactic and within expectation. Trump's reversal may seem tactical, the fear and hostility showed by his administration towards Made in China 2025 actually reveal a much bigger, more complicated picture behind the feint.

Since the Reform and Opening began in 1978, China has meta-morphed form an economic backwater into one of the most dynamic economies in the world. However, in recent years, China's growth has become unsustainable as the availability of cheap labor has waned and investment gluts have emerged. What is more, the global financial crisis showed Chinese policymakers the risks of an economy too reliant on exports to fuel growth. In such context, Made in China 2025, an essential policy for boosting China’s innovative capacities, seeks to transform the country into a global technology powerhouse, with its tech companies overtaking or even replacing their foreign counterparts at home and abroad by 2025. This touches into the core interests of both countries and the US demand for China to end this flagship industrial policy is doomed to be non-negotiable.

To our dismay, the balance of Sino-US relationship leans towards a more hostile and adversarial direction. As the Thucydides Trap predicts, the rise of new power will inevitably result in conflict with the existing power. It seems the conflict between the US and China is on various fronts from trade, technology, Taiwan to South China Sea. Hopefully, Wang Qishan, known among the Chinese leadership as the most seasoned "America hand", will mend the strained ties when he returns to Washington for the latest Sino-US strategic dialogue in late June or July. 
 
 
 
  
 

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