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Officials from the U.S. and China are expected to meet virtually this weekend to review the progress of the “phase one” trade deal the two countries signed in January. It promises to be an interesting encounter.
Beijing and Washington are at loggerheads on issues across the board, including technology, investment rules, Hong Kong autonomy, and China’s treatment of ethnic Muslims in the northwestern province of Xinjiang. As Geoff Colvin notes in the cover story of the latest issue of Fortune, the world’s two largest economies are hammering at each other like a pair of exhausted professional wrestlers, expelling each other’s media, shuttering each other’s consulates, barring each other’s companies from doing business, and slapping sanctions on each other’s leaders.
In the past week, President Donald Trump has upped the ante by vowing to ban TikTok, the wildly popular Chinese-owned short video app, unless it is sold to an American buyer. He also outlawed WeChat, the messaging platform that is a lifeline for millions of Chinese living in America.
As former Obama White House security adviser Evan Medeiros told the Financial Times: “We’re entering the Twilight Zone of U.S.-China relations.”
On Monday, Trump suggested he doesn’t care about the trade deal anymore, scoffing that it “means very little” in light of America’s more recent beefs with China.
That’s contrary to the account of Trump’s former national security adviser John Bolton, who asserted in a recent memoir that the trade deal was the only aspect of the China relationship Trump does care about because he believes that Chinese purchases of American agricultural products will help him claim victory in crucial farm states in November’s presidential election.
By Wednesday, White House economic adviser Larry Kudlow was dialing it back, reassuring reporters in Washington that the trade deal is “fine,” and dismissing suggestions that the agreement might come apart amid escalating U.S.-China conflict on other issues. “The one area where we are engaging is trade,” Kudlow said.
That may be so. But the fate of the “phase one” deal is suddenly fraught. China has fallen far behind on its pledge to expand purchases of U.S. goods and services in 2020 and 2021 by a combined $200 billion above to 2017 purchasing levels. Through June, China’s 2020 imports from the U.S. were about $40 billion, or less than a quarter of the targeted full-year amount agreed to under the deal, according to calculations by the Peterson Institute for International Economics.
With the U.S. presidential election less than three months away, Chinese President Xi Jinping faces a tricky decision. Does he try to ramp up purchases to put China’s imports back on schedule? Or should he dither, blame the pandemic for the lag, and promise to close the gap next year?
Either decision could influence electoral outcomes—though by how much is hard to parse. And which is in China’s interest?
The conventional wisdom is that a dramatic increase in Chinese purchases of U.S. soy beans would send grateful farmers in key states like Wisconsin and Iowa rushing to the polls to vote for Trump. If the purchases don’t materialize, in theory, that enables Democratic rival Joe Biden to claim that Trump got played.
But those assumptions may be flawed. A thoughtful essay by Dan Kaufman in the lastest New Yorker suggests smaller farmers are disillusioned with Trump and unlikely to vote for him in any case.
If Xi really can influence the outcome of the U.S. election, which candidate would he prefer? To hear Trump tell it, Xi is rooting for Biden who’s so soft on China that he’s practically The Manchurian Candidate. “If I’m defeated, China will own the United States,” Trump told conservative radio host Hugh Hewitt this week. “You will have to learn to speak Chinese!“
An assessment released by American intelligence officials last week concluded that while Russia is actively meddling in the U.S. election in an effort to benefit President Trump, China wants Trump out. But the assessment, according to the New York Times, found that Beijing was “weighing whether to take more aggressive in the election.”
Even so, many foreign affairs analysts concur with the assessment offered by Singapore diplomat Kishore Mahbubani in a recent Eastworld Spotlight: Trump, for all his anti-China bluster, is the devil Beijing knows—and has diminished U.S. leverage over China by picking fights with America’s traditional allies.
Several recent reports suggest Xi, while not quite reverting to Deng Xiaoping’s old maxim of “hiding China’s brightness,” is trying to keep the conflict with the U.S. from escalating further by, among other things, muzzling some of the nation’s more belligerent “Wolf Warrior” diplomats. On Monday, Foreign Ministry spokesperson Zhao Lijian, who has been a harsh critic of U.S. policies in the past, struck a conciliatory tone. “China is always ready to work with the United States,” he said. “We are prepared for a tough slog, through thick and thin, to pass this crisis in U.S.-China ties.”
Wall Street Journal correspondent Lingling Wei argues that, no matter which candidate wins in November, Xi is bracing for a protracted standoff with the United States. She notes that, in a series of speeches to government audiences since May, he has floated an idea called “domestic circulation,” laying the rhetorical groundwork for a major policy shift aimed at lessening China’s dependence on foreign markets, investment, and technology.
This week’s Eastworld Spotlight is a conversation with Anthony Tan, co-founder and CEO of Grab, one of Southeast Asia’s most dynamic tech players. Grab began as a ride-hailing venture and, since acquiring Uber’s operations in Southeast Asia, has blossomed into an “everyday super-app” offering consumers a wide array of different services on a single platform. While American counterparts like Uber and Lyft have been staggered by the pandemic, Grab reports unusual success in reassuring riders that its cars and motorbikes are clean and safe. In recent months, the group has rapidly expanded its food delivery, financial services businesses, and other businesses and has seen a quantum leap to cashless. Anthony also has a vivid account in the Commentary section about how the pandemic has accelerated innovation among Southeast Asia’s small and medium-sized businesses. Don’t miss it!
Clay Chandler
clay.chandler@fortune.com
This edition of Eastworld was curated and produced by Grady McGregor. Reach him at grady.mcgregor@fortune.com.
