The Xi-Trump talks: was anything achieved?

The detailed negotiations centred on trade and were, in many  respects, a continuation of negotiations during the first  Trump administration which were inconclusive: in effect a  ‘no-score draw’. 

But in the intervening years the underlying imbalances have  become worse. They can be summarised in the cliché that ‘China  saves too much and the USA saves too little’. The external  manifestation of this macro-economic phenomenon is the large  trade and current account surpluses of China and the deficits of  the USA. Trump is obsessed by the bilateral deficits with China,  but chronic imbalances are a problem for the world. 

Neither country appears able or willing to tackle the underlying  imbalances. Instead, the USA has pursued a decoupling strategy  under both the Biden and Trump administrations, mainly  through selective use of export controls – which may have  aggravated the trade imbalance, while the Chinese have also  sought greater ‘self-reliance’. 

Trump has returned to his original obsession about the bilateral  trade deficit by imposing high tariffs on Chinese exports. But this  stalled when the Chinese government retaliated in the form of  export restrictions on supplies of ‘critical minerals’ such as the  ‘rare earth’ elements which play a key role in advanced  manufacturing. Trump backed down, earning him the title of  TACO (Trump Always Chickens Out). The unwillingness of the  US Supreme Court to legalise the tariffs has rendered the issue  moot in any event. 

Trade tensions between Washington and Beijing continue to reshape global supply chains and advanced manufacturing sectors. Image AI generated 

Since Trump has had his fingers burnt once in a trade  confrontation with China, he does not want to risk another. But  the Chinese wanted a stable relationship with the USA and saw  that it was not in their interest to humiliate Trump by sending  him away empty-handed. So there were a few concessions – for  China to buy more Boeing jets and US animal feed – providing  Trump with some good, politically useful pictures and tweets –  but they are disarmingly vague. 

Trump had another big ask. He wanted some help in extricating  himself from the disastrous war with Iran which has failed to  achieve any of its several goals and is now feeding through into  higher petrol, diesel and fertiliser prices in the USA. The Chinese  are not only the biggest consumer of Iran’s sanctioned oil  exports; they are also allegedly supporting the Iranian war effort  by passing satellite images of American military assets. It is  uncertain as to whether China can influence Iran’s current  leadership; nor why they would want to. China is paying an  economic cost for the closure of the Gulf of Hormuz but it suits  China to have the USA distracted in the Middle East and fast  losing friends and credibility. In the event, no firm undertakings  appear to have been given. 

The Persian Gulf near Hormuz Island, where regional conflict increasingly intersects with global trade security. Photo: Ninara/CC BY-SA 2.0 

It seems odd that Trump has somehow become the ‘demandeur’  in the bilateral relationship. China’s economy is suffering  seriously from the collapse in the property market, while the  government lacks the fiscal space to inject necessary domestic  demand. Growth depends precariously on exports and the  willingness of the rest of the world to absorb them. By contrast,  the USA is enjoying the momentum of an AI-led boom defying  all predictions of doom and gloom. Trump’s personal metric of  economic success, stock market valuation, is stratospheric.

Yet China’s standing internationally is greatly strengthened  relative to the USA. This is in part a recognition of China’s  long-term economic advance and its growing leadership role in  technology, especially in sectors like renewable technology  whose importance has been underlined by the dangers of  dependence on oil and gas. But the key change is the perception  that China is the ‘adult in the room’: stable and reliable.  Countries that are on the receiving end of trade mercantilism  and unsympathetic treatment of debt are under no illusions that  China is a Mr Nice Guy. But predictability trumps chaos. To use  President Trump’s favourite metaphor, Xi is playing a weaker  hand of cards better. 

China’s growing influence in AI, renewable energy and advanced manufacturing is reshaping global economic power balances. Photo: Xinhua 

The meeting certainly did not result in a ‘grand bargain’ and  barely produced a ‘small bargain’. But there are two other  face-to-face meetings later this year and these may achieve  Chinese objectives of a loosening of the controls which limit  Chinese access to those few parts of the advanced AI ecosystem  in which it is not already self-sufficient or ahead. There may be a  loosening of restrictions on Chinese investment in the USA. 

The surprise of the summit was that Xi placed so much  emphasis on Taiwan, warning that failure to stabilise the issue  (and in China’s favour) will result in deepening conflict with the  USA. The Chinese are in no position to invade Taiwan through  frontal assault but can undermine Taiwan’s defence through  ‘grey zone’ warfare techniques and, possibly, some form of  blockade. They almost certainly calculate that time is on their  side with the possibility that internal politics in Taiwan may  shift towards accommodation with the mainland. The  immediate objective is to head off demands for Taiwanese  independence and to weaken US military support. Trump’s  subsequent comments suggest that he was persuaded by Xi to  make clear that the US does not support Taiwanese de jure independence, as opposed to the current de facto independence.

Taiwan remains the most dangerous flashpoint in the increasingly competitive US-China relationship. 

What we may now see is a power struggle in Washington. On  one hand, there are the security ‘hawks’, like Rubio, who see no  prospect of major deals with China and worry that a weakening  of the position on Taiwan opens the way to a weakening of  American influence in the Asia-Pacific. On the other, those  around Trump are more concerned with economic issues and  trade and the possibilities for good deals (including politically  advantageous deals). For them, Taiwan is just a nuisance to be  bargained for, like Greenland or Ukraine. The Chinese will play  the latter group against the former. 

The personalities and political agendas of Trump and Xi are so  different that it is difficult to see tangible progress on the big,  complex and difficult issues which lurk in the background.  There is a dangerous escalation in nuclear weapons and there are  no ‘guard-rails’ of the kind which prevented accidental nuclear  conflict between NATO and the Soviet Union. Competition in  Artificial General Intelligence, and more generally in AI, involves  some very risky activity but there is no agreement on regulatory  cooperation. The Taiwan issue potentially poisons any attempt  to build bridges to tackle these issues. 

So, we had some warm words and media-friendly gestures but  little of real substance. The most important bilateral  relationship in the world remains highly competitive at best and  seriously hostile at worst.