Beautiful friendship (part 2)

Perhaps the beginning of the end of the Cold War can be traced back to the 1971 world table tennis championships in Japan’s Nagoya. Prior to that diplomatic ties between China and the US had been severed since 1949. The icy relations began to thaw when the shaggy-haired American Glenn Cowan, an also-ran at the tournament, stumbled onto the wrong bus and mingled with China’s ping-pong team. Cowan, a self-described hippie, ended up giving a T-shirt with the Beatles lyric “Let It Be” to China’s world champion Zhuang Zedong and took photos with him.

Back in China the Cultural Revolution was still in full swing and such an encounter might have got Zhuang into trouble. But Chinese leader Mao Zedong took a very different approach. After learning of the exchange between the ping-pong players, he invited Cowan and the rest of the American table tennis team to visit. The hastily arranged tour began a few days later, stretching all the way from Hong Kong to the Great Wall. This so-called “ping-pong diplomacy” culminated in Richard Nixon’s historic visit to Beijing a year later, and a wider realignment in the politics of the Cold War.

Donald Trump, the current president, also plays up the importance of personal ties in the Sino-US relationship, although he generally means his own relationship with Xi, which he has described as “incredible” and the “primary reason” why the two sides will bridge their differences.

That was put to the test last weekend, with Japan once more the location as the leaders of both nations met on the sidelines of the G20 summit in Osaka. All eyes are now on whether the meeting might signal a new rapprochement between Washington and Beijing, taking the sting out of the trade and tech rows plaguing relations.

The icebreaker…

In fact, Chinese President Xi Jinping opened his meeting with the American delegation by reminding them of the table tennis incident in Japan back in 1971. That eventually led to the normalisation of Sino-US relations in 1979 he pointed out.

One basic fact remains unchanged over the last 40 years, Xi added: “China and the US both benefit from cooperation and lose in confrontation.”

Trump didn’t dwell too deeply on Xi’s history lesson, opening his side of the talks with a memory of his state visit to China in 2017, which he described as “one of the most incredible” experiences in his life.

At the time Trump and Xi drank tea and watched Peking Opera and the US leader went home with a swag of deals said to be worth $253 billion (see WiC387).

Yet less than six months later, his administration started slapping tariffs on Chinese imports. The world’s two biggest economies have since engaged in 11 rounds of on-again, off-again trade talks. The early negotiations were on the verge of breaking down until another meeting between Xi and Trump – held during the previous summit for G20 leaders in Argentina last November – which brought a temporary truce. Although there was talk that a trade deal was close back in May, negotiations ground to a halt once again, with both sides accusing the other of backtracking on the agreed terms (see WiC452).

The real reason for breaking the latest logjam, according to a report published on the People’s Daily weibo account, is what Trump has described as a “beautiful letter” he received from Xi in mid-May. The personal interaction between the two leaders looks to have been vital, although the pair only confirmed they would meet after Trump took the initiative to call Xi by phone two weeks before the G20 summit.

What has Trump agreed?

The details of Xi’s “beautiful letter” and Trump’s phone call were never made public. Both governments are yet to announce in any detail what was agreed during the duo’s latest 80-minute meeting in Osaka too.

But in many ways the fact they met at all was the main message. The key takeaway is that the two countries have agreed to (another) reboot of their trade talks. Back in Buenos Aires Trump had threatened to raise tariffs should the trade talks drag on for more than three months. That deadline was later postponed and this time there is no time limit on the duration of the truce, although there was no real indication on when formal talks will resume either.

In a post-meeting press conference, which Xi didn’t attend, Trump confirmed that the US had agreed not to impose fresh 25% tariffs on $325 billion of Chinese imports “for the time being”, although he later tweeted that there would be no reductions on the existing tariffs on other Chinese goods.

“I am in no hurry, but things look very good” Trump claimed.

Details were even more scant from the Chinese side. The foreign ministry said in a statement that negotiators from both nations would discuss “specific issues” in future and that Xi had told Trump he hoped the US could treat Chinese enterprises and Chinese students fairly.

The reference to ‘enterprises’ seems to be where Trump made the biggest concession, telling journalists that he would save the issue of how to handle business with Huawei for the end of the upcoming trade talks.

However, he added that he had “agreed easily” during the meeting with Xi that US firms would be allowed to do business with the Chinese telecom giant – as long as the sales did not involve equipment that threatened US national security.

Huawei has been subject to a US government-imposed export ban since May. That now seems to be lifted, although the New York Times highlighted the open question of what Trump had precisely agreed in revising what can be sold to the Shenzhen-based giant.

Some of his Republican colleagues aren’t happy that the Huawei ban has been softened too. Their criticism: that the president is confusing the trade row with other important priorities and that the restrictions shouldn’t be used as a bargaining chip. By offering the concessions in exchange for gains on trade, Trump is suggesting that the security risk posed by Huawei isn’t so great after all, it seems.

Did Beijing make concessions?

“China is going to be buying a tremendous amount of food and agricultural products and they’re going to start their buying very soon and almost immediately,” Trump claimed at the same press conference. Beijing has been more tight-lipped on the subject, although the US Department of Agriculture announced an order from China on the eve of the summit for 544,000 tonnes of American soybeans, the biggest contract of its kind since the trade talks broke down.

The Chinese government also seems to be dangling another carrot in Wall Street’s direction. At the World Economic Forum in Dalian this week, Chinese Premier Li Keqiang said the opening up of China’s financial markets would speed up, meaning that full foreign ownership of financial firms and life insurance companies will be allowed by 2020, a year earlier than previously announced.

Coming just days after the G20 meeting, China Business News suggested this was another friendly gesture by Beijing to take the heat out of the trade war.

State planners – such as the National Development and Reform Commission (NDRC) – also seem to have stood down on plans for countermeasures such as a ban on rare earth exports to American firms or the formalising of a list of “unreliable” foreign firms and individuals.

Also toned down is the hawkish stance of the state media outlets, which prior to Trump’s phone call to Xi had been firing on all cylinders in their criticism of Washington’s trade and foreign policies.

“Trade frictions between China and the United States will not be solved overnight,” the state mouthpiece Xinhua proclaimed. “Based on the cornerstone of equality and mutual respect, the two sides’ economic and trade ties are expected to be back on track.”

So which side prevailed?

Trump’s stance over Huawei may have softened, but that was partly a result of intense lobbying by American firms that want to keep doing business. Additionally more than 600 firms – including Walmart, Costco and Gap – have joined the “Tariffs Hurt the Heartland” campaign, writing to the White House a week before the G20 summit to urge Trump to end the trade war, which is hurting their businesses and their US customers.

The Semiconductor Industry Association, or SIA, a powerful trade group that represents the likes of Intel and Qualcomm, also told the Trump administration that sanctions against Huawei would backfire on American chipmakers’ global competitiveness. They argued that targeted action against Huawei is a much better strategy than an outright ban as a complete embargo would render American firms as “undependable partners”.

But US officials have been keen to rebuff the impression that Washington made the bigger concessions in Japan. The partial lifting of restrictions on Huawei was only a small concession in the context of a much larger trade deal, White House trade advisor Peter Navarro told CNBC. But the absence of a US-imposed deadline for the trade talks still points to a softened stance from the White House, Hong Kong-based newspaper HK01 believes.

How about other bilateral relations?

The G20 meeting turned out to be a busy trip for Xi. Besides the all-important meeting with Trump, he met with the host nation’s Abe Shinzo. In a sign that China’s relations with Japan are on the mend, Xi has agreed in principle to make a state visit to Tokyo next spring.

Xi then teamed up with Indian Prime Minister Narendra Modi and Russian President Vladimir Putin at the Russia-India-China (RIC) trilateral. Here he lobbied Modi to join the 5G partnership between China and Russia based on Huawei’s technology. Modi was receptive to Xi’s calls to promote the regular coming-together of the three nations in an “informal summit” on the sidelines of future G20 meetings.

Less successfully, a bilateral meeting with the other BRIC nation Brazil was abruptly cancelled by Brazilian President Jair Bolsonaro after his delegation was left waiting for 25 minutes.

Nor did Xi schedule an appointment with Canada’s prime minister Justin Trudeau, who evidently remains in the doghouse in diplomatic terms. Relations between Beijing and Ottawa dropped to a lowpoint in December after the arrest of senior Huawei executive Meng Wanzhou in Vancouver. She is wanted by the US on allegations of circumventing sanctions on Iran but her case has seen Canada bearing the brunt of Beijing’s displeasure.

Since Meng’s detention, China has arrested two Canadians on suspicion of espionage and blocked imports of Canadian agricultural products.

Trudeau – who sat next to Xi during the actual summit – claimed to have had a “face-to-face discussion” with Xi about the situation of the detained Canadians. This week he also told reporters that he was “confident” that Trump had honoured a promise to raise the issue during his lengthier talks with Xi. But a Chinese foreign ministry spokesman then countered that Ottawa was “naïve” to think that “a certain so-called ally” would make any difference in lobbying on the issue. “At most the Americans will move their lips a bit, because in reality this is an issue between China and Canada,” the spokesman said in a subsequent press briefing.

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