On December 1 Xi Jinping and Donald Trump will conduct face-to-face negotiations on the sidelines of the G20 summit in Buenos Aires. What are the chances for agreement between the two economic superpowers which collectively account for 40% of the world economy and whose growing rivalry threatens to plunge the world into global depression and war?
The summit will take place amid slowing growth rates and declining levels of world trade, exacerbated by Trump’s trade wars and U.S.-led sanctions that now extend to one-third of humanity. The ratio of global debt to GDP has reached record levels. The IMF warned in its October financial stability report that the world is at risk of another financial crash.
The 0.2% GDP growth achieved by the Eurozone in the third quarter of 2018 was the lowest since 2013. The export-oriented economies of Germany and Japan are losing steam, with Germany experiencing negative growth for the first time since 2015 and Japan’s economy contracting by 0.3%. Russia’s third quarter growth rate was just 0.9%. Even as its official growth rate has declined to 6.5%, the lowest in a decade, China is struggling with massive and seemingly unsustainable debt alongside increasing capital flight. Nomura Global Markets Research warns that “the worst is yet to come.”
The United States is an outlier but not, perhaps, for long. GDP growth continues to exceed 3.5% and official unemployment remains very low. However, the stock market has surrendered all of its 2018 gains, and few analysts believe that the ten-year long recovery can continue through 2019 in the context of tariff wars, the diminishing effect of the tax cut stimulus, and tightening monetary conditions. The collective market value of the six U.S. tech giants (Facebook, Amazon, Netflix, Alphabet, Apple, and Microsoft), acutely sensitive to protectionist fears, has declined by $1.1 trillion. U.S. debt now exceeds $21 trillion and is projected to reach 28 trillion by 2028.
Notwithstanding Vice President Pence’s bellicose speech on China in October, there was speculation after the mid-term elections that Trump would abandon his plan to increase tariffs on $250b of Chinese exports from 10% to 25% on 1 January. However, at the Asia Pacific Economic Cooperation (APEC) summit in Papua New Guinea (PNG) in mid-November Pence escalated his rhetoric, declaring that China’s concessions were insufficient and demanding that it “change its ways.”
For the first time an APEC summit ended without a joint communique. China’s foreign minister Wang Yi was reportedly the lone objector to the draft statement that included an implicit criticism of China: “We agree to fight protectionism including all unfair trade practices.” On the last day of the summit the “Trilateral Partnership” (U.S., Japan, Australia) issued a statement declaring that they would identify infrastructure projects in Asia based on “openness and transparency…while avoiding unsustainable debt burdens for the nations of the region.”
Alongside this scarcely veiled attack on the belt and road” initiative Pence announced that the United States and Australia would jointly re-establish the Lombrum naval base on Manus Island as part of a more general reconfiguration of the U.S. Pacific Command. The site of one of the most important U.S. bases during World War II, Lombrum is meant to keep open a southern passage to the South China Sea. The U.S. withdrawal from the Intermediate-Range Nuclear Force (INF) Treaty in October, which paves the way for the targeting of short and medium range nuclear missiles against China, is also a central factor in this reconfiguration.
Following the APEC debacle the United States and China cancelled plans for talks in Washington prior to the G20. Xi Jinping met in Manilla with Philippines President Duterte, who proclaimed that China is “already in possession” of the South China Sea. Vice Premier Liu He, China’s lead negotiator, traveled to the China-Europe Forum in Hamburg, seeking to enlist German support for China’s positions. However, Washington now considers Europe to be an increasingly important arena of U.S.-China rivalry and German support for China is unlikely. As the presiding PNG Prime Minister Peter O’Neill lamented at the end of the summit, “Two big giants in the room…the entire world is worried.”
Washington’s confusion and vacillation over China policy reflect of the increasing decentralization of the American capitalist class, no longer led by an organic “Washington-Wall Street complex,” and with disparate interests concerning globalization. Trump has mediated between the nationalist hawks, led by White House advisor Peter Navarro and U.S. Trade Representative Robert Lighthizer and enjoying strong support from the military industrial complex and Pentagon, and the more conciliatory globalists led by Treasury Secretary Steven Mnuchin. Having previously compared Mnuchin to Neville Chamberlain and detected the “stench” of Wall Street and Goldman Sachs behind the trade moderates, Navarro has warned that “Globalist billionaires are putting the full court press on the White House in advance of the G20…the mission of these unregistered foreign agents…is to pressure the president into some kind of a deal.”
Both sides have strong incentives to agree on a truce in Buenos Aires, if only to avoid a further loss of investor confidence. Although his nationalist trade rhetoric continues to resonate with his Republican base, Trump is feeling increasing pressure from some sectors of corporate America and major Republican donors to moderate his position. Evidence is mounting that tariffs are causing problems for the American economy. A buoyant economy did not prevent a significant setback for Trump in the mid-term elections and recession would almost certainly be fatal to his prospects in 2020. Triumphant House Democrats are already sharpening their knives. Trump has declared that “China wants to make a deal” and that he is “optimistic,” and Navarro has reportedly been excluded from the U.S. delegation. Although Beijing imposed counter-tariffs on the United States, it has also offered concessions to the United States, including increased energy and agricultural imports, greater freedom of action for U.S. investors in China, and stronger protections for intellectual property. Xi Jinping also took the extraordinary step of allowing a U.S. carrier battle group to anchor in Hong Kong after the APEC summit.
However, the U.S.-China rivalry is only in its infancy, and a substantive breakthrough is unlikely, whatever bonhomie the two men might affect during their dinner meeting. Lighthizer, by far the most influential and highly experienced trade negotiator in the Trump administration, last week issued a blistering Section 301 updated report on the national security implications of China’s trade practices. Moreover, the globalists themselves appear to be moving towards a strategy of containment, which also elicits bi-partisan consensus in the Congress. Thus, in a highly significant speech Henry Paulson, former Goldman Sachs CEO, U.S. Treasury Secretary, and principal architect of the China opening recently declared that the strategy of engagement is failing and that China’s rise “has come at America’s expense… China has not opened its economy to foreign competition in so many areas using joint-venture requirements, ownership limits, technical standards, subsidies, licensing procedures and regulation to block foreign competition. This is simply unacceptable.”
At the present time, at least, there is a wide gap between the concessions that China is able or willing to make and the demands made by the Americans. When ownership and not national accounts data are taken into account, multinational corporate America retains a substantial lead over its Chinese counterpart with respect to the most dynamic sectors of the world economy as well as military power. However, the gap is closing. The depth of mutual economic interaction and, hence, co-dependency is such that almost any steps that the United States takes against China result in either intended or unintended damage to American companies and the global economy. Trump has boasted that “trade wars are easy to win,” but they are more likely to lead to “mutual assured destruction.”