During the coming week, we should gain a feel for whether all the threats and counterthreats will lead to trade wars between the United States and the world’s other two largest economies, the European Union and China. Of the pair, progress may be more likely with China.
Without any action by Tuesday, a temporary exemption will expire and tariffs of 25 percent on European steel and 10 percent on aluminum will go into effect. Just a couple of days later, Treasury Secretary Steven Mnuchin will lead a delegation of President Trump’s top economic advisers to Beijing to discuss the U.S. trade dispute with China.
Despite appeals from French President Emmanuel Macron and German Chancellor Angela Merkel, both of whom visited Washington last week, Europeans are pessimistic about being able to defuse or delay the tariffs. They have published a list of items subject to retaliatory tariffs, including iconic American products such as jeans, bourbon and motorcycles (think Wisconsin’s own Harley-Davidson), but also agricultural goods — including corn, cranberries, orange juice and peanut butter.
Trump has complained loudly about U.S. trade deficits with Europe, particularly with the continent’s powerhouse, Germany. He also has complained about other countries, of course, including China, but he also gone out of his way to praise Chinese President Xi Jinping for help on North Korea and recent comments on trade. In contrast, he seems to have little rapport with the leaders of America’s most important European allies, or much inclination to negotiate.
Even Macron — Europe’s “Trump whisperer” — has said Europe won’t negotiate “with a gun to our heads.” But the lack of chemistry is particularly true of the EU’s most important figure, Merkel. Despite being close American allies, German officials have been highly critical of the U.S. president.
Plus it’s easier to cut a deal with an authoritarian figure such as Xi than it is with an organization representing 28 democracies. Given the timing and the complications, finding a last-minute way around an escalation of the trade dispute with Europe appears to be a pretty heavy lift.
But what about Mnuchin’s mission to China Thursday and Friday? It seems important, as Trump pointed out when he announced the trip last week, that it is coming at China’s request. Why would China issue an invitation unless it had something to offer?
Xi announced several weeks ago that China will make some modest moves to open up its economy. This seems like the time to flesh out those commitments. No one expects negotiations to be easy, but commentators say there is a decent chance they will ease tensions. It makes sense for China to offer enough concessions at this point to avoid a blowup. China could endure a trade war with Trump — and would if it had to — but it does the country little good.
Trump’s policy in Asia, as it is in so many other places, is transactional. So far, it largely has been focused on two issues, trade and North Korea. On the other hand, China is playing a longer game aimed at becoming the dominant power in East Asia. Xi is focused on China’s standing in the region and in the world, claiming global leadership on issues such as climate change and trade. If China gives a little in the short term, it may stand to gain a lot more in the longer run.
North Korea also must figure into China’s calculations. Experts have sharply differing views on China’s role in the recent diplomatic offensive by North Korean leader Kim Jong Un — including his just-completed summit with the South Korean president and his planned meeting with Trump.
Not long ago, Kim seemed largely beyond China’s influence, and some think China is still running to get ahead of events. But after Kim’s surprise visit to Beijing in late March, it seems more likely that China has persuaded him that the two countries can benefit by coordinating their policy. If that’s true, it’s in China’s best interest not to sour the positive feelings building as Trump rushes toward a meeting with Kim that could dramatically reduce the chance of a war China is eager to avoid.
The one obvious complication in Mnuchin’s visit is actually on the American side, and it has to do with the makeup of the U.S. delegation. Mnuchin and White House economic adviser Larry Kudlow are free-traders. But other senior members of the delegation — Peter Navarro and U.S. trade representative Robert Lighthizer — are trade hawks closer to Trump’s mentality. It will be hard for the Chinese to figure out who — if anyone — speaks for Trump.
The most charitable spin on this is that the Americans will try to win concessions by playing good cop/bad cop. But that’s not particularly effective if the other side has clearer priorities and a better strategy. In any case, regardless of who goes to Beijing, Trump will make his own decision for his own reasons.
Trump would love to claim victory in both of these disputes. Who wouldn’t? But it’s not going to be clean or simple, and victory may well be in the eye of the beholder and his spin-meisters. Of those two giant economies, China has more flexibility – and the Communist president-for-life probably has a better relationship with the U.S. president than the leaders of those venerable European democracies.