Some Thoughts on the Upcoming US-China Meeting

New China

The meeting between the US and Chinese Presidents is at hand.  Having seen how Chancellor Merkel was treated can only reinforce the cautiousness of President Xi.  There is much speculation over the range of issues that could be discussed, though President Trump seemed to play down the trade issue for now.  The Trump administration has begun a thorough review of existing trade agreements, and it does not seem quite ready yet to talk specifics.

It is not clear how China sees Trump.  He has backed down on two threats – to cite China as a currency manipulator (on day one) and to abandon the US recognition of only one China.  China has made only two minor concessions.  It will not import coal from North Korea, who apparently launched some a projectile the day before the meeting between the two presidents.  Second, China recently granted Trump more than three dozen commercial trademarks.

It is not immediately obvious what the US Secretary of State meant when he said that the period of “strategic patience” with North Korea is over.  Nor was it obvious what President Trump had in mind when he said that the US did not need China’s help with North Korea.  Separately, but not totally unrelated, China does not like the US missile defense system in South Korea.

Press reports suggest that the Trump administration is alarmed at the possible Chinese purchase of Westinghouse’s nuclear reactor business.  This issue could emerge as the hot button topic.  Energy Secretary Perry and Treasury Secretary Mnuchin have reportedly discussed blocking the sale, while at the same time trying to find a US or allied buyer to take China’s place.  Westinghouse filed for Chapter 11 bankruptcy last week, and parent company Toshiba is looking to unload the money-losing nuclear reactor line of business.

Yet we do expect some commercial deals to be agreed to during Xi’s visit.  We would not be surprised if the US and China agreed to trade talks, like the ones agreed to with Japan.  It is on this side of Alice’s Looking Glass that the Chinese President may caution the US President against slipping into mercantilism and abandoning free trade principles when the two meet at Mar-a-Lago in Florida Thursday and Friday.