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Face-off In Buenos Aires. Can Trump And Xi Reach A Deal To Avert A Trade War?

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China and USA shaking hands

There is growing optimism that a damaging US-China trade war will be averted when US President Donald Trump meets with his Chinese counterpart Xi Jinping on the sidelines of the Buenos Aires G20 meeting at the end of the month. Both commodity and share markets have been improving on recent news that a deal will be achieved. But how confident can we be of the outcome? 

There is much at stake for both the US and China if a deal is not reached between the two national leaders. Trump has imposed tariffs on US$250 billion worth of Chinese imports. And China has responded with its own tariffs, primarily hitting US agricultural exports to China – such as soy beans. But since last week news reports have suggested China may be prepared to negotiate and that has seen share and commodity prices improve. Here’s a link to the Bloomberg report about China’s willingness to make concessions in order to avert a trade war, and what it may be willing to concede.

However, before you pop open the Champagne to celebrate, it is worth considering the challenge for China to compromise on everything Trump has demanded.

I’m not talking about the economic challenges for China to open its markets. Market liberalisation should be a no brainer for China; it has already benefitted considerably since it commenced opening its markets to the outside world and competition more than 30 years ago. South China Morning Post correspondent Carry Huang made the argument last week about the benefits China would reap by liberalising its economy in a piece called China must open its markets to weather Trump’s trade war.

I’m talking about the political challenge. The real question is whether Xi is prepared to risk losing face by making concessions to The Donald. It is important to understand the significance of “face” in Chinese culture. Face (or mianzi) is about a person’s dignity and respect. In Chinese culture it is important to “give face” to others but also to maintain your own face. While President Xi will be keen to give face to President Trump (i.e., to show him respect so Trump can retain his own dignity), Xi will be equally keen to ensure he does not lose his own dignity in the process. The nuances involved in this dance of dignity are difficult to convey to anyone who has not lived in the East or is not familiar with Eastern culture. It is very complex. Needless to say, Xi will be keen to find a “face saving” solution for both parties; a way to walk both Trump and himself back from the edge of a trade war.

But the wild card in the equation is President Trump. His approach to deal making does not suggest he understands the sensitivities or subtleties of East Asian cultures. The Art of the Deal, Trump’s autobiographical book on business success, is not about face saving solutions. It is about “truthful hyperbole” (code for exaggeration and chest thumping) and getting the upper hand. If Trump tries that Xi will have no choice but to stand strong. He cannot afford to lose face by showing weakness.

Xi only has two ways to demonstrate his strength. The first is to push back on any Trump threats of higher tariffs by imposing tariffs on US imports into China. That could put both countries into a worse tit-for-tat tariff spiral the rest of the world does not want.

His other option is to take the high road and respond by emphasising China’s commitment to free trade and open markets. Earlier this month during the China International Import Exhibition in Shanghai, a trade show to encourage more imports from the rest of the world into China, President Xi emphasised his nation?s ongoing commitment to market liberalisation.

Let’s hope Xi stays that course when he faces off with Trump in Buenos Aires on 30 November.