Trump will be keen to prove he is still the master of the deal and may find Xi, unlike Kim Jong-un, a more amenable peer
US president Donald Trump will soon have another chance to improve his fading reputation as a dealmaker after the recent disappointment of his Hanoi summit with North Korean leader Kim Jong-un. He expects to host Chinese president Xi Jinping in Florida this month to strike a "grand deal" addressing trade and all other bilateral issues between the US and China.
Washington is driving a hard bargain. It wants China to increase imports of agricultural and energy commodities and other US products in a bid to eliminate a near $400bn trade deficit. Beijing is likely to lean on its state-run oil firms to do their bit to redress the trade imbalance by buying US crude. China imported more than 300,000 b/d of US crude last year, before halting its purchases in response to the trade war. Resuming this trade is the most obvious way to cut China's surplus with the US, but only as long as the US is the most economical source of crude.
US oil and natural gas producers hope for that outcome. The country's crude output will reach 13.2mn b/d in 2020 and it could become a net oil exporter later that year, the EIA forecasts. And US developers of the second wave of LNG export projects eye offtake agreements and investment from buyers in China. Industry outlooks assume China's longer-term rise to become the world's largest LNG importer will mirror the US' transformation into a leading LNG exporter.
But Trump's hardline trade representative Robert Lighthizer says that buying more from the US is not sufficient, and that Beijing must address Washington's demands for stronger protections surrounding intellectual property and an end to forced technology transfers. In return, Trump offers to remove tariffs imposed last year and to address US charges against Chinese telecommunications firm Huawei, despite questions as to whether he has the legal authority to intervene.
All that will be underpinned by a handshake between the presidents, Lighthizer says, citing a quote attributed to former French president Charles de Gaulle — "Agreements between nations, like flowers and children, last while they last." Trump's foreign and trade policy actions have followed that maxim, discarding the Iran nuclear deal and the Paris climate deal signed by his predecessor.
Washington assumes that Xi has no choice but to accept this deal. US tariffs hurt China only, Trump says. But Xi says resolving the trade war will improve the economic outlook for both countries. White House economic officials and Federal Reserve chairman Jay Powell admit this point. Beijing will hope that Trump is hungry enough for a "win" to overrule Lighthizer and focus on the trade deficit.
Phoney war
Xi, unlike Trump, has no electorate to answer to. But he, too, is eager to secure a deal to ease concerns over slowing economic and employment growth before the communist party meets for the annual national people's congress in Beijing this month. China's Shanghai stock market shot up by 20pc following news that the US would defer its mooted 1 March tariff hike, and amid rising hopes of an agreement.
"We are very well on our way to doing something special with China," Trump says. "But I am never afraid to walk from a deal." Washington's delay to further tariff escalation leaves the world's two biggest economies in a phoney trade war. But the road to peace requires both sides being able to claim victory.
