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At G-20 summit, Trump and Xi try to reach a deal without giving away too much

President Trump meets with Chinese President Xi Jinping at a summit in Beijing in November 2017.
President Trump meets with Chinese President Xi Jinping at a summit in Beijing in November 2017. (Andy Wong/AP)

President Trump and Chinese President Xi Jinping will meet this week amid hopes of repairing trade links, even as the United States and China prepare for a future economic relationship that is likely to be more distant than at any time in decades.

Neither leader can attain his ambition of recapturing lost national glory — Trump’s “Make America Great Again” and Xi’s “great rejuvenation of the Chinese nation” — without stabilizing the U.S.-China relationship.

But the history of their on-again, off-again negotiations over the past two years is littered with missteps. Expectations for the parley at the Group of 20 summit in Osaka, Japan, are modest, with many analysts predicting that the two will agree only to revive stalled trade talks.

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Since negotiations collapsed six weeks ago — on the brink of a historic agreement — the divide between the two nations has only widened. Mutual distrust, and political imperatives in both capitals, now cloud chances to eventually reach the comprehensive trade deal Trump once demanded by March 1 and to restore a lasting partnership.

“Both are worried about critics if they make too soft a deal,” said Michael Pillsbury of the Hudson Institute, a China scholar who occasionally advises Trump. “But neither one seems to understand how the other one thinks.”

That disconnect was on vivid display last month when Chinese negotiators demanded what American officials saw as a substantial last-minute weakening of the tentative text.

Accusing Beijing of reneging on a deal, Trump responded by more than doubling tariffs on $200 billion in Chinese goods and beginning the process of imposing them on an additional $300 billion. He also dealt Chinese technology aspirations a blow, barring Huawei, perhaps China’s most prominent global corporation, from buying American components.

Officials in Beijing insist that the requested changes resulted from a standard review by the country’s most senior officials, with many suspecting that the Trump administration is more interested in blunting China’s rise to superpower status than in resolving trade frictions.

“China would like to calm the waters, but they’re not sure what’s enough to do that and how long the calm waters would last,” said Scott Kennedy, a senior adviser on China at the Center for Strategic and International Studies. “The Trump administration has done such a good job of threatening China through brinkmanship that the Chinese now don’t know if they can trust the administration to arrive at any type of agreement.”

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Trump, 73, and Xi, 66, last met in December, over a steak dinner at the previous G-20 leaders gathering that led to talks on U.S. complaints about China’s state-led economy.

Today, each leader is surrounded by advisers who cultivate a narrative of decline about their negotiating partner. Since the 2008 financial crisis, Chinese officials have seen the United States as a fading power that will inevitably surrender primacy to Beijing, while Trump has been vocal about what he sees as Chinese economic and financial weakness.

“Our economy has been very powerful; theirs has not been,” he told reporters last month. “We’ve gone up a lot since our great election in 2016. And if you look at the numbers, they’ve gone down quite a bit.”

Yet steering their economies through a worsening trans-Pacific trade conflict poses challenges for both leaders.

Though unemployment remains at a 50-year low, growth in the United States is slowing and recession risks are rising, prompting the Federal Reserve to consider cutting interest rates later this year.

Likewise, from Zhongnanhai, the ruling compound in central Beijing, Xi presides over a debt-laden Chinese economy that is headed for its weakest performance in a quarter-century.

But the Chinese leader may be better positioned than his American counterpart. China’s strongest ruler in decades, Xi can boost government spending and direct the People’s Bank of China to cut interest rates, increase lending or weaken the value of the yuan, which would make Chinese goods more competitive in world markets.

In the United States, interest rates and the dollar’s value are the purview of the independent Federal Reserve and beyond Trump’s control. Trillion-dollar budget deficits following 2017’s corporate and personal income tax cut would limit his ability to contemplate government stimulus if today’s modest slowing were to accelerate.

“Xi controls both fiscal and monetary levers, and Trump does not,” said Ryan Hass, a former Foreign Service officer who directed China policy for President Barack Obama’s National Security Council. “Xi doesn’t have to stand for reelection. And Xi controls the public narrative inside China. Structurally, he has advantages.”

Trump also has noted Xi’s advantages. “He’s the president of China,” Trump told CNBC this month. “ . . . He can do whatever he wants.”

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Negotiations derailed last month when it seemed that almost the sole outstanding question was where Trump would host Xi for a signing ceremony.

Instead, China’s ruling Politburo Standing Committee rejected key parts of the roughly 150-page text as unbalanced, with Xi among those voting it down, according to one individual familiar with the discussions, who spoke on the condition of anonymity to describe confidential matters.

Some blame China’s chief negotiator, Vice Premier Liu He, an economic reformer and Xi confidant, for not laying adequate groundwork for Chinese concessions. An economist by training, Liu “seems to have a tin ear politically,” said Dennis Wilder, a former China analyst for the Central Intelligence Agency who recently met with Chinese officials in Beijing.

Xi would have known in general terms what Liu had negotiated. But the Chinese leader, who does not read English, would not have seen specifics until the text was circulated among Politburo members, with each adding personal observations in the margins, said Wilder.

“When Xi saw the handwritten comments of other Politburo members, he realized that what Liu had struck would be dangerous for him,” Wilder said.

Specific requirements for changes in China’s laws, which Robert E. Lighthizer, the president’s chief trade negotiator, demanded to ensure Chinese compliance, were particularly offensive.

Coupled with Trump’s frequent public assertions that the Chinese would buckle in the face of a stronger American economy, the language raised fears in Beijing that his goal was to humiliate China or block its rise, not to resolve U.S. trade complaints.

“Xi is a strong leader, but there are limits to what his party will tolerate,” said Clete Willems, until April a White House trade adviser and now a partner at Akin Gump.

The episode suggested that Trump’s remorseless negotiating style — honed in the winner-take-all atmosphere of Manhattan real estate — was colliding with the realities of elite Chinese politics.

U.S. accusations of reneging “baffled” the Chinese, Pillsbury said. Xi responded by greenlighting a propaganda blitz of anti-American themes from the Korean War and warning of a new “Long March,” a reference to the communists’ epic 1934 wartime retreat.

“The president has become intoxicated with the use of tariffs as a point of leverage, even with things beyond trade, as we saw with Mexico,” said the person familiar with the talks. “He sees everything as a zero-sum outcome. That doesn’t work with China.”

U.S.-China channels fell silent while the two sides mulled their next moves.

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Trump has frequently said that a robust U.S. economy and his painful tariffs would compel China to bend to his demands. But he hasn’t acted like someone with all the leverage.

In recent days, he held off formally notifying Congress of a planned $2 billion arms sale to Taiwan, which Beijing regards as a renegade province; delayed a speech by Vice President Pence that was expected to lash China over human rights; and hinted that national security concerns about Huawei could be bargained away.

“The administration has been desperate for these talks for weeks. It’s been painful to watch,” said Derek Scissors, a hawkish China expert at the American Enterprise Institute and an occasional White House adviser.

The president’s eagerness for a meeting may be linked to the performance of the stock market, which slid almost 5 percent in the weeks after the breakup before rebounding amid hopes that the Fed will cut rates. Or, as Scissors suggested, it could be tied to political concerns following the disclosure of polls showing the president trailing former vice president Joe Biden in key industrial states.

In any event, the soft-pedaling paid off. Xi labeled an economic divorce between the two trading partners “unimaginable” and agreed to talk.

“There’s been a debate internally in Beijing and at senior levels: Is the U.S. interested in a deal or in bringing China down? Which is it?” said Wilder, who now heads the Initiative for U.S.-China Dialogue on Global Issues at Georgetown University. “They’ve concluded it’s time to give this another shot. The alternative is to go to ‘war’ with the United States.”

That decision seeks to avoid a complete rupture with the United States while speeding efforts to reduce dependence on American suppliers for critical components such as semiconductors, analysts said.

Xi has tailored his retaliatory tariffs to hit American products that China can buy elsewhere while avoiding unique products such as Boeing aircraft and cutting tariffs for China’s other trading partners.

“On the Chinese side, you’re seeing a very clear strategy emerge,” said Charles W. Freeman Sr., a former diplomat who interpreted for President Richard Nixon during his meetings with Mao Zedong. “Let’s avoid a fight if we can and step up self-reliance.”

Even if the Osaka meeting revives negotiations, the path to a deal that resolves Trump’s complaints about China’s coercive technology-transfer policies, theft of trade secrets and ballooning trade deficit remains a long one.

Negotiators will face time pressure, according to Kennedy. A temporary Commerce Department license allowing Huawei to conduct limited transactions with U.S. technology companies expires Aug. 19.

Without an extension — or a trade deal that resolves the company’s status — it would mean “the end of Huawei as we know it,” Kennedy said. “With that type of damage, China wouldn’t be able to hold back and not retaliate.”