Trump's tariff pause shows he's got his eyes on the prize

President Trump's delay on implementing announced tariff increases on Chinese goods that would be on many Christmas shopping lists sparked a stock market bump yesterday.  But, while domestic considerations (i.e., his re-election) are important, the move must be seen in the broader context of a stare-down with President Xi.  Even though China is a dictatorship, Xi's hold on his job is not something he can take for granted.

Xi has grabbed power, purging some of his enemies and ending limits on his tenure, which makes him personally responsible for the serious ill effects of his tariff war with Trump and for the unrest in Hong Kong.  China in a no-win situation with the former colony.  Even worse, the crisis comes as China's leadership is gathered for its annual meetings at Beidahe, a coastal resort, a practice with six decades of history.  No matter how much power Xi has grabbed, if the heads of the power bases of the party turn on him, blaming him for "serious errors," his rule could end.

Anna Fifield in the Washington Post:

"Xi Jinping and the rest of the Chinese leadership are under siege," said Elizabeth Economy, a China expert at the Council on Foreign Relations. 

"The Chinese economy is slowing significantly, exacerbated by the trade war; and the 'China model' is cracking under the weight of XinjiangTaiwan, Belt and Road messes and, most significantly, the massive protests in Hong Kong," she said, referring to China's efforts at control and influence within its borders and beyond.

Time is not on Xi's side:

Hong Kong students are making plans to demonstrate when universities resume classes next month. 

That would take the protests uncomfortably close to celebrations planned on Oct. 1 to mark the 70th anniversary of the foundation of the People's Republic of China, which was established with the goal of unifying greater China under the leadership of the Communist Party.

Already, global supply chains are moving out of China, making further economic decline inevitable.  But China's territorial integrity — the exercise of its sovereignty over Hong Kong in this instance — is the highest value for the Communist Party and for the public.  The humiliation experienced by China when foreign powers grabbed its territory and obtained extraterritoriality for their nationals is seared into the modern Chinese mind.

China's official organ, The People's Daily, already is signaling its eagerness to use this weapon against Trump or anyone else who criticizes its actions in Hong Kong:

This is why Trump has avoided any comment on the dispute beyond hoping that violence does not escalate and that everybody is safe.  Criticizing China about Hong Kong would only strengthen Xi's hand by allowing him to clothe his moves in patriotism.  China's national emblem is instructive in this regard:

 

It combines the star of communism with the symbol of imperial rule.  Xi's reign depends on both traditional patriotism and pride and support of the apparatus of the Communist Party, whose leaders all are gathered in one place right now.

So if Trump wants to exercise leverage on Xi in order to obtain his real goal, China's abandonment of its development model consisting of rigging trade and stealing intellectual property, Trump has to construct an enforceable understanding with Xi.  That means not fanning the flames of the genuine crisis for Xi, while demanding that he take concrete steps to abandon the model.  If pushed into a corner, Xi might well decide to whip-up patriotic fervor with actions such as an invasion of Taiwan that could cause catastrophic consequences.

Trump, in other words, needs what has been called a "Goldilocks strategy" of not too hot and not too cold.

With this in mind, consider the president's remarks delivered before boarding Air Force One for a visit to Pennsylvania yesterday:

Q Why did you make the decision on the tariffs, to delay the implementation of the tariffs?

THE PRESIDENT: Only to help, I think, a lot of different groups of people. And we had a very good talk yesterday with China — a very, very productive call. I think they want to do something. I think they'd like to do something dramatic. I was not sure whether or not they wanted to wait until a Democrat has a chance to get in. Hopefully that's not going to happen because the economy would go to hell in a handbasket very fast.

But they really would like to make a deal. The call itself was very productive. I'm not sure if it was the tariffs or the call, but the call was very productive. Again, they've said this many times; they've said they're going to buy farm products. So far, they've disappointed me with the truth. They haven't been truthful, or, let's say, they've certainly delayed the decision. But it's their intention to buy a lot of farm product.

And we did — we had a very good call with China. I mean, they would really like to do — as you know, they have a problem in Hong Kong, but they would like very much to do something.

I see this as evidence that Trump is working for an understanding with Xi (whom he continually praises as smart and his friend) to build a consensus in the leadership all gathered together now, for structural change in their development model.

Milton Ezrati  summarizes them on CityJournal

…Washington's demands that China import more from the United States, cease cyber theft, and let Americans do business in China without Chinese partners. These aren't new demands, but the Trump White House wants them guaranteed in Chinese law.

… and points out how these were being seen:

This last point, China's leadership claims, is an affront to the country's sovereignty.

Trump is offering China a way to back off from characterizing structural change in their national development model as "interference in their domestic affairs," which is China's habitual manner of rejecting foreign demands of all sorts. If Xi is to win backing for this epic change, he has to be able to persuade the rest of the leadership that other things even more important to them will be forthcoming. Trump is signaling that he will not push them into a corner, that there is a way out that can avoid a catsrophic downturn in the economy as Hong Kong challenges their control of the former British colonial posession.

It is a high wire act, to be sure. And we have no way of knowing what is taking place at Beidahe, though I do hope our intelligence agencies have some idea. But my strong sense is that Trump has his eye on the big prize: a "new China" that plays the game of international trade by the rules others accept. If ever there were a moment where such a grand bargain is possible, it is right now.

President Trump's delay on implementing announced tariff increases on Chinese goods that would be on many Christmas shopping lists sparked a stock market bump yesterday.  But, while domestic considerations (i.e., his re-election) are important, the move must be seen in the broader context of a stare-down with President Xi.  Even though China is a dictatorship, Xi's hold on his job is not something he can take for granted.

Xi has grabbed power, purging some of his enemies and ending limits on his tenure, which makes him personally responsible for the serious ill effects of his tariff war with Trump and for the unrest in Hong Kong.  China in a no-win situation with the former colony.  Even worse, the crisis comes as China's leadership is gathered for its annual meetings at Beidahe, a coastal resort, a practice with six decades of history.  No matter how much power Xi has grabbed, if the heads of the power bases of the party turn on him, blaming him for "serious errors," his rule could end.

Anna Fifield in the Washington Post:

"Xi Jinping and the rest of the Chinese leadership are under siege," said Elizabeth Economy, a China expert at the Council on Foreign Relations. 

"The Chinese economy is slowing significantly, exacerbated by the trade war; and the 'China model' is cracking under the weight of XinjiangTaiwan, Belt and Road messes and, most significantly, the massive protests in Hong Kong," she said, referring to China's efforts at control and influence within its borders and beyond.

Time is not on Xi's side:

Hong Kong students are making plans to demonstrate when universities resume classes next month. 

That would take the protests uncomfortably close to celebrations planned on Oct. 1 to mark the 70th anniversary of the foundation of the People's Republic of China, which was established with the goal of unifying greater China under the leadership of the Communist Party.

Already, global supply chains are moving out of China, making further economic decline inevitable.  But China's territorial integrity — the exercise of its sovereignty over Hong Kong in this instance — is the highest value for the Communist Party and for the public.  The humiliation experienced by China when foreign powers grabbed its territory and obtained extraterritoriality for their nationals is seared into the modern Chinese mind.

China's official organ, The People's Daily, already is signaling its eagerness to use this weapon against Trump or anyone else who criticizes its actions in Hong Kong:

This is why Trump has avoided any comment on the dispute beyond hoping that violence does not escalate and that everybody is safe.  Criticizing China about Hong Kong would only strengthen Xi's hand by allowing him to clothe his moves in patriotism.  China's national emblem is instructive in this regard:

 

It combines the star of communism with the symbol of imperial rule.  Xi's reign depends on both traditional patriotism and pride and support of the apparatus of the Communist Party, whose leaders all are gathered in one place right now.

So if Trump wants to exercise leverage on Xi in order to obtain his real goal, China's abandonment of its development model consisting of rigging trade and stealing intellectual property, Trump has to construct an enforceable understanding with Xi.  That means not fanning the flames of the genuine crisis for Xi, while demanding that he take concrete steps to abandon the model.  If pushed into a corner, Xi might well decide to whip-up patriotic fervor with actions such as an invasion of Taiwan that could cause catastrophic consequences.

Trump, in other words, needs what has been called a "Goldilocks strategy" of not too hot and not too cold.

With this in mind, consider the president's remarks delivered before boarding Air Force One for a visit to Pennsylvania yesterday:

Q Why did you make the decision on the tariffs, to delay the implementation of the tariffs?

THE PRESIDENT: Only to help, I think, a lot of different groups of people. And we had a very good talk yesterday with China — a very, very productive call. I think they want to do something. I think they'd like to do something dramatic. I was not sure whether or not they wanted to wait until a Democrat has a chance to get in. Hopefully that's not going to happen because the economy would go to hell in a handbasket very fast.

But they really would like to make a deal. The call itself was very productive. I'm not sure if it was the tariffs or the call, but the call was very productive. Again, they've said this many times; they've said they're going to buy farm products. So far, they've disappointed me with the truth. They haven't been truthful, or, let's say, they've certainly delayed the decision. But it's their intention to buy a lot of farm product.

And we did — we had a very good call with China. I mean, they would really like to do — as you know, they have a problem in Hong Kong, but they would like very much to do something.

I see this as evidence that Trump is working for an understanding with Xi (whom he continually praises as smart and his friend) to build a consensus in the leadership all gathered together now, for structural change in their development model.

Milton Ezrati  summarizes them on CityJournal

…Washington's demands that China import more from the United States, cease cyber theft, and let Americans do business in China without Chinese partners. These aren't new demands, but the Trump White House wants them guaranteed in Chinese law.

… and points out how these were being seen:

This last point, China's leadership claims, is an affront to the country's sovereignty.

Trump is offering China a way to back off from characterizing structural change in their national development model as "interference in their domestic affairs," which is China's habitual manner of rejecting foreign demands of all sorts. If Xi is to win backing for this epic change, he has to be able to persuade the rest of the leadership that other things even more important to them will be forthcoming. Trump is signaling that he will not push them into a corner, that there is a way out that can avoid a catsrophic downturn in the economy as Hong Kong challenges their control of the former British colonial posession.

It is a high wire act, to be sure. And we have no way of knowing what is taking place at Beidahe, though I do hope our intelligence agencies have some idea. But my strong sense is that Trump has his eye on the big prize: a "new China" that plays the game of international trade by the rules others accept. If ever there were a moment where such a grand bargain is possible, it is right now.