The Trump administration is going to try to avoid a trade war this week -- don't hold your breath

  • Trump is sending a team to Beijing this week to talk trade.
  • According to reports, they won’t be taking any new goals with them, and the ones they have are non-starters for the Chinese.
  • This means that it’s likely nothing will come from these negotiations, but nothing is still an increasingly nasty situation for these countries and the global economy.

Treasury Secretary Steve Mnuchin, US Trade Representative Robert Lighthizer and White House advisors Larry Kudlow and Peter Navarro are going to China to talk trade.

That means this could be the week we avoid a trade war. That would be grand.

More likely, though, in true Trumpian fashion, absolutely nothing will happen at this meeting. Just like with other economic summits between the US and China, it will be much hyped, but with few consequences.

That doesn’t mean the danger will disappear though. If nothing happens we’ll be left with the US-China trade situation we’ve had up to now. It’s a status quo where the absence of diplomacy leaves room for action to come from accidents – from heightened rhetoric forcing hands to save face.

Practice and policy

Policy aims aside, this meetings is already looking a little haphazard.

According to the WSJ the White House has not sent an advance team sent to Beijing to prepare. Meanwhile, the team itself divided. According to reports, Mnuchin has wanted to take a meeting with his counterpart since late March after speaking with China economic enjoy over the phone. He and Kudlow are more amenable to a solution to trade rhetoric. Trump added Lighthizer and Navarro to the mix to get a more hawkish view in the room.

What’s more, says the WSJ, the delegation is unlikely to put anything new on the table. The main agenda for this group will be to reiterate President Trump’s tariff threats against China and see what their counterparts have to say. It is unclear why reiterating talking points merits a meeting – especially when the President is liable to just put them on Twitter – although the WSJ also notes that former Treasury Secretary Hank Paulson will be in Beijing at the same time. Total coincidence.

Seriously, that’s what they’re saying. They’re saying it’s a total coincidence.

So if you’re keeping a tally so far: We’re working with no advance preparation, an incohesive team and no new policy ideas to put on the table.

The underlying point of the $US150 billion in tariffs the Trump administration has threatened to impose is that the US wants to force China to change its economic policy. It wants China to stop propping up state-owned enterprises and using US technology to forward its “Made in China 2025” plan to be a world leader in AI, robotics and telecommunications.

This is what the US wants, and it’s a non-starter for China, according to an unnamed official in the South China Morning Post. China is willing to say, buy more US goods, but it will not go as far as changing its economic goals or how it plans to reach them. Trump may be setting a goal that sets his team up for failure.

The art of the squeal

Now, maybe this meeting will see a swing to the middle by the US side.

As Axios’ Jonathan Swan noted, people are starting to get the hang of Trump’s negotiating tactic. Basically, go in with tough talk and then adjust to a more middle of the road position. It happened with steel and aluminium tariffs, with withdrawal from Afghanistan and Syria, and vetoing the government spending bill, to name a few examples. All of those issues started heated and ended tepid. Like I said, it’s the art of the squeal.

This potential US-China trade war could be another situation to add to this list, but we have no reason to believe the administration is going to go into moderate mode just yet. In fact, we have every reason to believe the opposite.

Last Friday, the US put China on a “priority watch list” of 12 countries that consistently violate intellectual property rules for the 14th year in row, and according to reports, there’s talk of initiating another trade investigation into China’s cloud computing industry.

Plus, earlier this month the Commerce Department put sanctions on Chinese telecom supplier ZTE. For the next 7 years, the company will not have access to US parts because it violated intellectual property agreements. Sounds good, but the situation has US experts worried that other countries (maybe even China) will develop the technology to fill the gap.

James Andrew Lewis over at the Center for Strategic and International Studies explained why fining ZTE may have been a better idea:

In the 1960s, or even the 1970s, the United States could get away with this kind of blanket proscription. It made technology that no one else could duplicate. That is no longer true. The diffusion of technological capabilities around the work began more than 20 years ago, and the rate of diffusion continues to increase. Just this week, China’s president, Xi Jinping, called for China to redouble its efforts to close the gap with the United States in advanced technologies…

U.S. technological leadership is diminishing as other countries become more adept at creating advanced technology, but our actions can affect and limit the pace and scope of this. The goal should not be to accelerate technological competition; ZTE’s punishment, however well deserved, may have the opposite effect.

Either way, the ZTE situation seemed to bother the Chinese press.

So, since you’re still keeping score, what we have is a meeting of two parties who have yet to make any headway in the past, and have not changed their expectations. Meanwhile, the stakes are getting higher, a trade war is looming, and the Trump administration is taking aggressive action that some experts worry may backfire.

If nothing happens at this meeting we’re probably getting the best case scenario.

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