Economic Implications of Trump visit to China

By Sara Hsu

U.S. President Donald Trump’s upcoming visit to China has been dubbed in advance as “very historic and significant” by U.S. Ambassador to China Terry Branstad.  The meeting between Xi and Trump on Thursday will further develop U.S. and China trade and business relations.  However, some American experts believe President Trump’s poor understanding of trade makes him a poor negotiator, and that he should work toward obtaining longer run economic goals. Without this, the U.S. will continue to face complaints from its business community, despite China’s best efforts to maintain strong diplomatic relations.

Container are shown stacked and ready for transport at the Port of Long Beach, Calif., Wednesday Aug. 12, 2009.[Photo: AP/Nick Ut]

Expected outcomes of the trip

Trump will travel with a business delegation that is expected to sign a number of memoranda of understanding with Chinese firms in the areas of energy and agriculture.  Goldman Sachs CEO Lloyd Blankfein will join the delegation, as Goldman and China Investment Corporation (CIC), China’s sovereign wealth fund, have agreed to launch a $5 billion fund to invest in American manufacturers. In another large anticipated deal, China Petroleum and Chemical Corp. is expected to invest in the U.S. which will create thousands of jobs in Texas and the Virgin Islands.  This will extend business and investment ties between the United States and China.

President Trump is expected to also discuss the U.S.-China bilateral trade deficit and intellectual property protection, though it is not clear what he expects to gain.  Trump stated on Monday that the deficit “must come down” but without clear targets, little of consequence may be anticipated.  For its part, China has shown its willingness to reduce the trade deficit by expanding its imports, slating its first import fair for November of next year.  China is also interested in obtaining increased sales of American high-tech goods and greater American participation in President Xi’s flagship One Belt One Road project.

Deals of middling significance

When all is said and done, Trump is likely to come away from the trip with deals of middling significance that he will tout as big wins.  This is beneficial for China, which is unlikely to be forced to concede much on its own, without deep engagement.  Part of the problem in terms of a poor outcome is that the U.S. President lacks an understanding of trade dynamics, and views the trade deficit as a loss for America. As an example of this, Trump stated on the campaign trail that “I believe in free trade, but we got to get something out of it. We can't have free trade where we lose $500 billion a year, where we lose a hundred billion with another country and 50 billion with another one.” What Trump doesn’t realize is that a deficit means that the U.S. is consuming more than China, that trade is not a zero-sum game.

Without an understanding of trade, Trump cannot properly negotiate with China.  The American business community also fears that he will not properly request further opening up of Chinese markets to U.S. businesses.  Ongoing talks over a treaty that would equalize investment opportunities for both China and the U.S. have stalled, as the Trump administration has withdrawn from traditional negotiation channels.  This process has greatly reduced America’s preparedness for fruitful interaction with China.  

Furthermore, under Trump, the U.S. has focused not on long-term gains, but on short term “deals.” U.S. Commerce Secretary Wilbur Ross has stated that the Trump delegation will seek “immediate results” in China. This is without a view to commit to more in-depth outcomes, which could be more fruitfully sought by continuing bilateral discussions to shape mutually beneficial outcomes regarding equal access to markets and intellectual property protection. The American business community is concerned that these issues will be lost among the litany of proclaimed “deals.”

China striving to maintain strong relations

All of this is despite China’s intention to maintain strong ties to the United States and support the world order.  China has taken the new administration’s stance on trade and globalization in stride, with President Xi defending the globalization process at the World Economic Forum in January.  Xi has reacted calmly to President Trump’s complaints about the trade deficit, attempting to smooth over relations with the blusterous American leader. Xi stated in September, “I believe that President Trump’s upcoming visit to China means an important opportunity for the further development of China-U.S. relations.”

Indeed, China-U.S. relations will be maintained despite the shortcomings of the U.S. president, but the deliverables are likely to be unsatisfactory to Americans playing the long game in China. A stronger negotiation process is key to making significant gains for American businesses; this appears to be elusive under Trump.

(Sara Hsu, associate professor, the State University of New York at New Paltz)