Valdai Club

The APEC summit held in November 2018 was a clear example of the destructive influence of the US-China confrontation on the regional development prospects. The dispute over the joint communiqué reflected the depth of divergence between Washington and Beijing. The United States demanded that the participants strongly condemn China for “dishonest” trade. China wanted the forum to speak out against protectionism and unilateralist policies – that would amount to unequivocal criticism of the United States.

The two sides failed to find common ground. Speeches by Chinese leader Xi Jinping and US Vice President Mike Pence showed that this is becoming more and more difficult. The United States is dissatisfied with China’s trade policy and its desire to obtain advanced technologies from American companies, which are entering the Chinese market, and is indignant about the “theft of intellectual property.” Add to this statements about protection from Chinese “threats to the freedom of navigation” in the South China Sea and criticism for non-observance of human rights. The American side wanted to create a weighty ram against China by binding together economic, military-political and humanitarian arguments.

Markets and economic analysts reacted enthusiastically to Donald Trump’s statement that China responded to US demands because “it wants to make a deal.” If such a deal is concluded, in January the United States will not impose an increased 25% tax duty on Chinese imports, which amount $267 billion. Trump explained that Chinese promises are not enough and Beijing should make further concessions. The question is where the limits of these concessions are. US business circles need to trade with China. In this area the space for bargaining is great. The Chinese side is ready to reduce the trade deficit by increasing purchases of American hydrocarbon raw materials, agricultural products, and consumer goods. A similar deal was agreed on in May 2018, but Trump refused it.

China is not against expansion of the share of American business on its domestic market. Protection of intellectual property in China is gradually strengthening, as the number of Chinese patents increases and the national innovation system is developing. Xi Jinping tirelessly convinces foreigners that China will open its markets, facilitate access to foreign companies, reduce duties and expand the consumption of foreign goods and services. These proposals are addressed to the business communities of the whole world, which does not exclude discussion about additional preferences for the US companies.

The obstacle is the rapidly growing conviction of the American political elite that China challenges national security and economic interests of the United States. American politicians try to make China change the model of economic development, which creates “unfair” advantages in international competition. They want Beijing to abandon state support for the innovation sector of the economy.

Trump is unhappy with the “Made in China 2025” program, which was released in 2015. Its goal is to gain leadership in ten spheres (IT, robotics, aviation and astronautics, transport, power equipment, new materials, etc.) by the middle of the next decade. China will not sacrifice any of these areas. Moreover, the widespread use of the sanctions policy and trade embargoes by the US administration is an additional argument in favour of China’s decision to create its own advanced scientific and technological base.

The US believes that the Chinese authorities will give in and make concessions in order to maintain economic indicators (trade barriers threaten to reduce annual GDP growth by about 1%). But China understands that thoughtless acceptance of demands regarding privatization, liberalization and democratization can destabilize the situation inside the country. Then the economic growth can stop or even become negative. It is much easier for Beijing to use the well-developed financial incentives for the economy to maintain growth rate.

Forty years has passed since the beginning of the Chinese reforms in December 1978. It is possible that the Chinese economy will meet the most stringent American market standards in another four decades due to the smooth transformation. However, Donald Trump will not be able to credit himself with this merit. He needs an obvious and convincing success that can be presented to voters in 2020. 

At the APEC summit, Xi Jinping and Mike Pence did not listen to each other. This is an unkind symbolic sign that indicates the decline of the APEC role as a tool for the development of trade and investment in the region. The best thing that Trump and Xi can do at the G20 summit in Argentina is to stop the public polemic and start serious negotiations. It can only be a truce, not real reconciliation. Tariffs and restrictions that Washington and Beijing have already imposed on each other are unlikely to be lifted in the foreseeable future. The good news would be the mutual rejection of the new trade barriers. The bad news would be the transformation of the G20, right after APEC, into another international platform for the exchange of reproaches between the two economic giants.