US-China-North Korea Triangle

Minxin Pei

The summit between Donald Trump and Xi Jinping was billed as the most important meeting that the new occupant of the White House has had with a foreign leader. Such a characterization appeared fitting since the relations between the United States and China, the world’s largest and second-largest economies, are indisputably pivotal for both countries. However, the April 6-7 get-together at Trump’s resort in Florida did not result in any substantial agreements on the most pressing bilateral issues. Observers can be forgiven for asking what the summit has accomplished and where this relationship is going. In the background, they should keep in mind how the North Korean issue threatens to dampen this relationship.

Both Trump and Xi were eager to claim success. This is undoubtedly true at one level. Acting as a gracious host, Trump was on his best behavior during the summit and avoided any missteps that might embarrass his protocol-obsessed guest of honor. Even more notably, Trump went out of his way to portray the summit as an unqualified success. He claimed that he had made “tremendous progress in our relationship with China,” and his personal relations with with Xi “outstanding.” He even predicted, “lots of very potentially bad problems will be going away.” By comparison, Xi’s public statements on the summit were far more restrained. While lauding the summit as an important step toward improving US-China relations, he refrained from exaggerating its accomplishments. This contrast in how the two leaders conducted themselves revealed their dramatic differences in political style. Trump is a quintessential salesman prone to bluster and hyperbole, while Xi is a classic apparatchik well-versed in the art of not giving away what he really thinks.

The Mar-a-Lago summit could be considered a net plus, despite Trump’s decision to attack Syria with cruise missiles on April 6, which quietly upset his Chinese guests who were unpleasantly surprised by the sudden turn of events. Based on press reports, Trump and Xi appeared to have established some sort of personal rapport, a valuable asset in bilateral ties. The summit also reversed the adverse momentum in US-China relations since Trump’s surprise victory last November. Observers of US-China relations have been worried about Trump’s tough rhetoric and threats against China. For example, he floated the idea of ending Washington’s long-standing “one-China policy” and threatened to impose a 45% tariff on all Chinese imports. His chief political strategist, Stephen Bannon, championed a hardline policy that would target China as America’s principal geopolitical adversary. Even a largely symbolic summit, however, can temporarily stabilize relations.

In the case of Washington’s ties with Beijing, it is reasonable to expect a period of relative stability in the short-term (about one year). The so-called 100-day plan to tackle bilateral trade deficits has established a process for negotiation. It would be naïve to believe that complex bilateral trade issues can be resolved in 100 days, but this process may just deliver enough face-saving results to allow Trump to declare victory. As we breathe a sigh of relief that the Trump administration appears to be leaning toward a more pragmatic approach toward China, it is premature to declare that relations are back on track. Many difficult challenges lie ahead. The one Trump previously prioritized is trade, but now, he is focusing on the North Korean threat.

Trade

Behind the thin veneer of projected harmony in Mar-a-Lago lies a host of unresolved bilateral issues. A telltale sign that these issues could cause new frictions between Beijing and Washington is the rapidity with which Trump changed his tone. Not before long since his guest left town, Trump tweeted that “only time can tell” whether the United States and China can make progress in resolving their trade tensions. His secretary of commerce, Wilbur Ross, bluntly warned about these negotiations on April 9—just two days after the summit—“if we don’t get some tangible results within the first 100 days, I think we’ll have to examine whether it’s worthwhile continuing,”

Neither Beijing nor Washington has said much about the 100-day plan. The most likely explanation is that both sides agree more time is needed to make meaningful progress with regard to trade. There are early signs that both sides are trying to make the process work.  Immediately after the conclusion of the summit, China announced that it would lift the ban on American beef imports and allow American financial service firms to establish majority-owned subsidiaries in China. Perhaps to reciprocate, the Treasury Department did not label China a “currency manipulator” in its April report, even though Trump has repeatedly accused of China as such.

Much tougher negotiations lie ahead, and a successful outcome of the 100-day process is by no means assured. The most serious obstacle is the definition of success from Trump’s perspective.  If he attempts to achieve a radical reduction in bilateral trade deficits—as he has pledged to do— then the chances that the 100-day process will achieve this objective are minimal because trade deficits are determined by structural macroeconomic factors that are impossible to change in the short term or without painful domestic economic restructuring. In the case of US-China trade, the massive trade imbalances in favor of China are caused primarily by China’s high savings and under-consumption and in contrast, America’s low savings and over-consumption. In other words, as long as Americans consume more than they produce, they will run trade deficits.

A more promising approach to address bilateral trade imbalances is to remove barriers erected by the Chinese government to protect its domestic industries (mainly state-owned enterprises). The difficulty with this approach is the resistance from Beijing, which views the protection of these industries as vitally important in terms of national and regime security. Given the complexity of negotiating market access, Chinese and American officials will be hard pressed to come up with a satisfactory package at the end of the 100-day process. Even if they do, the impact on bilateral trade imbalances and US manufacturing employment will be modest at best, since broadened access to the Chinese market will benefit the high-end service sector more than manufacturing.

North Korea

US-China trade negotiations, complex and difficult as they are, could be derailed by another factor: North Korea. Trump has explicitly linked US-China trade relations to the latter’s cooperation in containing North Korea’s nuclear threat. On April 11, less than a week after he painted a glowing picture of US-China relations, Trump tweeted that China could get a “far better” trade deal if it helps to “solve the North Korean problem.” The immediate implications of the statement suggest that ties could quickly sour if Beijing does not live up to his expectations in pressuring North Korea.

Of course, given Trump’s record of flip-flops, we can never be certain whether he will actually link his trade policy with China’s cooperation on the North Korean issue. Nevertheless, Chinese policy-makers must take seriously the risk that North Korea’s conduct could significantly alter the trajectory of US-China relations. Indeed, among the risks that can derail US-China ties and create unwanted frictions, the North Korea factor is undoubtedly the most lethal.

The public statements on North Korea by Trump and his key foreign policy advisers have conveyed the unmistakable impression that Washington now views the threat posed by Pyongyang’s nuclear and missile programs as the most dangerous challenge facing the United States. Unfortunately, only three options are available. The first is a negotiated outcome that results in the suspension of Pyongyang’s nuclear and missile programs—a more realistic goal—or the dismantling of these programs—an impossibly ambitious objective. This option can only be viable with Chinese cooperation since Beijing has at its disposal the necessary economic tools to pressure the North Koreans to come to the negotiating table. Another option is a negotiated resolution obtained mainly with American concessions. This scenario hinges on Washington’s willingness to negotiate with Pyongyang bilaterally and meet its extravagant demands. The third option is to resort to military coercion or even to preemption.

Among the three options, China would welcome the second since all the costs will be borne by the United States. But to the United States, such an option is the least palatable since it will force the United States to pay an exorbitant price in exchange for an unlikely outcome, namely North Korea’s promise of nuclear disarmament. As may be easily surmised, the third option is the most dangerous as a military strike against North Korea’s nuclear facilities will doubtlessly trigger a devastating war on the Korean Peninsula, which might even escalate to the use of nuclear weapons by a desperate regime.

This leaves the first option—a favorable negotiated outcome achieved primarily through Chinese economic pressures on North Korea—as the most attractive. Unfortunately, what is attractive to Washington can be unattractive to Beijing. By elevating North Korea as the make-or-break issue in US-China relations, Trump is forcing China to make a painful strategic choice.  Beijing will have to weigh the risks of a serious deterioration in US-China relations against those of a collapse of the Kim Jong-un regime, triggered by Chinese economic sanctions. China may be worried about American military preemption against North Korea, but most Chinese leaders view Trump’s threat of military action as largely empty because of the near-certainty of a nuclear war on the Korean Peninsula.

In deciding its own course of action on North Korea, China will weigh which is the lesser of two evils: losing North Korea as a security buffer against the United States or accepting the consequences of a serious deterioration in US-China relations because of China’s unwillingness to cooperate on North Korea. At the moment, and for the foreseeable future, Beijing will continue to think that it would rather incur Washington’s wrath than risk triggering a regime collapse in North Korea and, subsequently, lose its security buffer. As long as this mindset dominates Chinese decision-making, deteriorating US-China relations on account of North Korea is a foregone conclusion.

Conclusion

The last risk factor that lies ahead in US-China relations is policy incoherence in Washington caused by the conflict among Trump’s advisers and his own unpredictability and lack of experience. The internecine fight pitting Trump’s right-wing populist guru Bannon against relative pragmatists will continue to plague decision-making in the White House. Bannon’s influence has waned as he faces a powerful coalition consisting of Trump’s immediate family—his son-in-law Jared Kushner, who supposedly has considerable influence on China policy—and establishment figures such as the national security adviser Lt. Gen. H. R. McMaster and director of the national economic council Gary Cohn. Nevertheless, Bannon is Trump’s link to the populist movement. Firing him risks alienating Trump’s most fervent supporters. So long as the in-fighting in the White House continues, Trump’s China policy will lack the coherence badly needed for keeping Washington’s ties with Beijing stable and predictable.

For all the risks and uncertainty that lie ahead in US-China relations, one reassuring thought is that the Chinese government appears to be more disciplined and prepared. Although we cannot rule out Beijing’s potential miscalculation and intransigence in dealing with Trump, Chinese behavior since Trump’s victory indicates that Xi Jinping and his colleagues take Trump’s threats seriously and are ready to make the necessary concessions to avoid a headlong collision with the United States—apart from the North Korean issue. For Washington, this change of Chinese posture creates a window of opportunity in which it can regain some of its bargaining power over China. But taking full advantage of this opportunity requires thoughtfulness, consistency, restraint, and patience—qualities yet to be reflected in Trump’s foreign policy.

On the Chinese side, even if the Trump administration exhibited all of these positive qualities, there remains an overdue decision to apply economic pressure on North Korea commensurate with what is needed to address the security challenge. While bilateral China-US relations can be viewed from a lens of tradeoffs between trade for security, we must also consider the trilateral relationship—which includes North Korea—as an overriding US security concern for which China must make a fundamental change in its own security reasoning to avert the danger of a sharp deterioration in China-US ties.

#100-day plan #Donald Trump #Economic sanctions #Mar-a-Lago #nuclear proliferation #Trump-Xi Summit #Xi Jinping