Interpreting trend of US-China ties and impact on Asia

By Ralf Ostner

If you compare the results of the Xi-Trump-summit with the election campaign Trump who questioned the One-China principle, planned a trade war, called China a currency manipulator, wanted to impose import sanctions, the new Trump is a very cooperative Trump who wants to get solutions for the trade imbalances and North Korea. Xi Jinping’s announcement that China will further open up its markets is a good basis for a Sino-US understanding and compromise. It won´t be a US-China G-2 as former US geo-strategist Brzezinski proposed, but this meeting is really a positive gain for the world.

Trump perceives Xi as a strong leader who will do the best for his country, but it was the fault of previous American governments that China could use free trade agreements for its advantage. Therefore he and Xi have to find a new compromise that the US trade imbalance will be reduced and that China will open its markets for US capital. The decision of the 19th Party congress of the CPC is exactly realizing this. That China opens up its financial sector for majority shares of foreign capital is very much what Trump demands. He will push liberalizations of other areas. However a trade war is becoming less probable as China liberalizes its markets. It will depend more on Trump how far he wants to push the Chinese liberalization.

Chinese President Xi Jinping delivers a keynote speech at the Asia-Pacific Economic Cooperation (APEC) CEO Summit in Da Nang, Vietnam, Nov. 10, 2017.[Photo: Xinhua]

The second big topic is North Korea. Trump and Xi agreed that the denuclearization of North Korea should be a long-term goal, but that diplomacy should be the main instrument for the solution of the crisis. However, North Korea under no circumstances will denuclearize, but would at best only stop its nuclear tests and missile tests. China wants North Korea to start economic reforms like China under Deng Xiaoping, stop its nuclear and missile tests and to restart the 6-party talks, What Trump wants is unclear, but it seems that he doesn´t want to solve the problem by multilateral talks, but by a two-men show and direct talks between him and Kim Yong Un. Therefore the Xi-Trump-summit is a deescalating event, but breeds no real bilateral solution.

The APEC summit also has mixed results. While Trump repeated his goal to get rid of multilateral free trade agreements, Xi replaced the USA by pronouncing China as the avant-garde of free trade, globalization and multilateralism. The Trump administration cancelled TPP, but China wants to replace it by a network of new multilateral free trade agreements with APEC, the Asian countries and Europe. Japan as second regional Asian leader tries to regroup TPP against China and 11 former TPP leaders agreed to sign a free trade agreement on its own. Japan also tries to sign a Japanese-European free trade agreement with the EU (JEFTA). The Asian countries see that China is becoming the major economic power in Asia and the Pacific and hope that Japan can counterbalance this by a new TPP without the USA. However, this framework can only rely on the hope that Trump won´t be reelected in 3 years and that the USA will rejoin the new TPP.

Another factor is that the liberalization of the financial markets in China and the USA will reshape the whole financial architecture of the world. On the one side it will give a big boost for globalization. On the other side it will globalize the risks for a new financial crisis. China gives majority rights and shares to foreign banks and insurances, but Bloomberg perceives this as a compromise to Trump´s national economic pressure and the need to diversify the bad loans of Chinese banks, shadow banks and other financial institutions and state enterprises which accumulated debts to the brinkmanship of default besides currency and trade surpluses. 

At the same time the new Fed chief Jerome Powell thinks about the deregulation of the US financial markets and banks. Bloomberg TV said that it would be only a gradual change, that Powell doesn`t want to get rid of the Dodd-Frank Act, but it´s not sure how far the Fed will push the deregulation of the financial markets. The combination of the liberalization of the Chinese financial market and the US financial market could lead to a further globalization of financial boom in the future.

Trump said at the APEC meeting that he wants to get rid of monopolies in trade, protect intellectual property rights and to cut state subsidies. This was addressed mainly at China. But China is liberalizing and making efforts to cut state subsidies. However, Trump should realize that China has reached the status of a high-tech nation which develops its own technology as speed trains, quantum computers or artificial intelligence. It´s no wonder that the representatives of the Silicon Valley issue warnings that China will surpass the USA in quantum technology and artificial intelligence. Trump should realize that US competiveness and jobs are not that much reduced by trade imbalances and globalization, but because of a productivity gap, lack of investment in education and digitalization.

In Conclusion, Trump´s Asia tour was deescalating, the Xi-Trump summit is a gain for the world as it tries to get compromises on Sino-US ties and North Korean issue. However: Much will depend how China and the USA will manage their bilateral relations as core relations for Asia and the world.

(Ralf Ostner is a Chinese-English-German translator based in Munich, Germany)