President Trump and Xi’s G20 dinner could halt — or escalate — US-China trade war

The leaders of the world two largest economies, Donald Trump and Xi Jinping, will sit down face-to-face Saturday in Argentina for a highly anticipated dinner that many hope will halt, at least temporarily, an escalating tit-for-tat trade war.

The leaders of the world two largest economies, Donald Trump and Xi Jinping, will sit down face-to-face Saturday in Argentina for a highly anticipated dinner that many hope will halt, at least temporarily, an escalating tit-for-tat trade war.

And it’s anyone’s guess what the ultimate outcome will be.

This week alone the American President has both pledged to press ahead with a plan to raise tariffs on $200 billion in Chinese goods to 25% from 10%, while also expressing optimism that he could strike a deal with Xi. The mixed signals from the White House, combined with Trump’s mercurial personality, have rattled Wall Street and risk both jeopardizing the economies of the two countries, but also globally.

“Where we are right now is in a place of considerable uncertainty,” said Craig Allen, president of the US-China Business Council. “Clearly, there’s a lot of jockeying going on within the administration with pretty sharp contrasts between the positions that people are taking. That’s what makes this so unpredictable. We don’t know where it will end up.”

Surrogates from the both the United States and China, in the days leading up to the dinner being held on the sidelines of the G20 summit in Argentina, have each conveyed optimism over a potential breakthrough, though Trump has made clear he’s only willing to play ball if necessary concessions are made by Beijing. One possible way out for both sides could be a suspension of new tariffs while negotiations proceed in a timely manner after months of deadlock.

But lurking underneath such hopeful assuredness have been strong signals the Trump administration may be gearing up to fulfill the President’s threat of a third round of tariffs on $267 billion in Chinese goods, if talks fail.

In the last two weeks, Trump’s top trade negotiator, Robert Lighthizer, has said Beijing had done little to fix top US concerns tied to technology transfers, intellectual property and innovation in his updated report of the US government’s investigation of China’s unfair trade practices. He also announced a week later he had been directed by the President to “examine all tools” available to address significantly higher tariffs imposed by the Chinese government on US car makers.

Trump also added another layer of ambiguity this week when he told reporters on the South Lawn at the White House as he departed for Buenos Aires that the United States and China were “very close” to striking a deal, while quickly adding he was willing to stick with the status quo of billions of dollars of tariffs on Chinese goods since they were helping to fill the US government’s coffers.

“But I don’t know if I want to do it, because what we have right now is billions and billions of dollars coming into the United States in the form of tariffs or taxes,” said Trump Thursday morning. “Frankly, I like the deal we have right now.”

Experts saw the President’s remarks as yet another attempt by the Trump administration to create an even bigger advantage over China to force them to “take a couple of other steps” in the lead up to talks. Earlier this month, Trump described an initial offer by Beijing negotiators as “not acceptable,” claiming “we’ll probably get them, too,” following calls between the two presidents as well as between Mnuchin and Chinese Vice-Premier Liu He.

“That’s a good thing,” said Allen. “We want the best deal we can get. This deal has to address the structural issues — and it’s very difficult.”

In a blow to moderate advisers like Treasury Secretary Steven Mnuchin and National Economic Director Larry Kudlow, Trump asked Peter Navarro, his White House trade adviser and a renowned China hawk, to travel with him to Buenos Aires in yet another show of force. The invitation came after the White House had said he wouldn’t join the President’s delegation. The move was seen by experts as a way for hardliners like Navarro and Lighthizer, the US trade representative, to amplify their messaging to the President.

This week’s mixed messages from Washington to some extent reflects deep divisions in Trump’s own West Wing between free traders — including those with Wall Street backgrounds like Mnuchin and Kudlow — and trade hawks like Lighthizer and Navarro.

For now, Trump and his surrogates, including Lighthizer, have each hinted since their arrival in Argentina that “success” could be on the horizon when the two leaders meet tonight. A similar sentiment was echoed just a few days earlier by Kudlow, who told reporters Tuesday, “I’m sure they’ll be very respectful of each other.”

“It’s a question of what is in Trump’s mind at this point,” said Robert Khun, a long-time adviser to Chinese leaders and host of CTGN’s Closer to China with R.L. Kuhn. “The best bluff is the one when you’re not bluffing. I do not think it’s entirely a bluff, I think he’s prepared to do much more aggressive things. He thinks in his heart of hearts that his threats will be believed and people will work harder to obviate that threat from being actualized. He’s using his tough guys to bring that home. I think that’s clear.”

While close observers noted the usual bluster from both sides as they sent signals they were inching toward some kind of deal this week, there’s still wide agreement over a change in the rhetoric from the two countries, especially after months of silence.

“There’s been a noticeable change over the last month,” said Jeremie Waterman, president of the China Center for the US Chamber of Commerce. “It’s been fairly clear that the two presidents would like to have a positive meeting with some kind of positive, forward-looking outcome that hopefully de-escalates.”

The high-stakes tete-a-tete in Argentina is the only formally scheduled meeting on the books between Trump and Xi, and comes weeks ahead of a January 1 deadline set by Trump to raise tariffs on $200 billion in goods to 25% from 10%. On Friday, Trump said he sees “some good signs” as negotiators for both sides are “working very hard.” He also noted Kudlow and his staff have been “dealing with them on a constant basis” referring to negotiators from Beijing. “I think they want to and I think we’d like to so we’ll see,” said Trump.

Long-time US-Sino relations experts say that not since President Richard Nixon’s seven-day official visit to China in 1972 has a meeting between two countries been so critical. The trip, which Nixon dubbed “the week that changed the world,” ended a 25-year diplomatic stalemate between the two nations.

“There is an incentive to compromise,” said Cheng Le, director of the John L. Thornton Center at the Brookings Institution. “If you do not reach a positive result that will embarrass both leaders, that risk caring about the relationship. We are entering a very, very troubling period in US-China relations.”

Still, experts cast doubt over how much detailed agreement would be ironed out at the leaders’ dinner, suggesting any agreement will likely set off a heavy to-do list for Cabinet officials to work out very quickly.

“I don’t think it’s our expectation that the two presidents are going to get into a lot of detail, and of course, they are going to have other issues to talk about beyond just trade,” said Waterman. “Not every problem is going to be solved overnight.”