Trump vs. Xi, mano a mano

It’s no surprise, then, that oft-private trade negotiations have taken a public-facing persona with Chinese President Xi Jinping and President Trump. The result is a trade “war” that resembles a battle of wills more than an economic policy dispute, a one-on-one between Trump and Xi played out in the court of public opinion.

This dynamic complicates any attempt to suss out winners and losers. Trade wars are often assessed through a traditional strategic analysis of payoffs and outcomes between rational actors or decision makers, or “game theory.” In the current situation, however, it’s perhaps more useful to understand the trade war as a proxy battle between the two leaders: Trump versus Xi, mano a mano, personal reputations on the line just as much as national interest.

The individual nature of this conflict puts Xi, a ruthless authoritarian unbeholden to voters and with virtually unlimited power over his political system, at a considerable advantage.

The U.S.-China trade war has continued to escalate over the past several months as Trump and Xi exchange tariff slaps. Reports suggest Trump wanted to “double” tariffs on China as a result of Xi’s retaliatory measures while seeking to reposition blame to the Chinese for dragging their feet, calling the Chinese negotiators “unfair” and “politically motivated.” Last week, he took an even harsher tone by calling his Chinese counterpart the “enemy.”

All the while, the U.S. economy is beginning to feel the effects of the trade war. The trade war has already reduced employment by an estimated 300,000 jobs, and economic forecasts suggest that Trump’s tariffs are hitting the U.S. economy more than twice as hard as the Chinese economy. Swiss bank UBS warned last month that the escalation of the trade war is depressing economic growth and driving the United States toward the brink of recession.

Meanwhile, on the other side of the Pacific, Xi has suffered politically with the Chinese Communist Party for his failure to achieve a trade deal. Xi has insisted on taking a primary role in negotiations and has, in turn, been openly critical of Trump during his trade war escalations.

Trump may have thrown the first punch, but Xi still holds the better position. Xi, of course, holds the benefit of being “president for life” of an authoritarian government. And the Mao disciple is no stranger to ego and ruthless intolerance for any perceived loss of control.

Following the Arab Spring, China censored the word “jasmine” from the internet, hoping to curb pro-democracy supporters seeking to follow suit from Tunisia’s Jasmine Revolution. Last week, China eliminated South Park from its internet after the show aired an episode entitled “Band in China.” Last year, China censored HBO’s Last Week Tonight with John Oliver for its criticism of Xi and banned Disney’s Christopher Robin because some people on the internet pointed out that Xi resembles Winnie the Pooh. (The Xi-Pooh bear association has been used within China as a pro-democracy rallying cry.)

And that’s just on the internet and in media.

Xi has overseen a Communist Party that has disappeared famous actors and media personalities, imprisoned millions of Uighur Muslims (whom the government views as a threat to its vitality) in internment/reeducation camps, and removed a number of high-ranking officials to solidify Xi’s power under the auspices of “eliminating corruption.”

Yet it’s clear from a soft power perspective that Xi realizes he is at a tipping point as well. Domestic growth issues, as well as turbulence in Hong Kong, have put tremendous pressure on a presidency entirely dictated by strongman perception with the Chinese Communist Party. His support largely depends on “winning” relative to American interests.

Trump is similarly in the midst of domestic strife as he faces reelection in 2020. The president only had a brief respite after the end of the Mueller investigation before Congress launched an impeachment inquiry over his alleged attempts to pressure Ukraine. Plagued by resignations, terminations, and leaks, the president’s inner circle has consistently tightened around him. And should the economy sour in any meaningful sense before 2020, there is little doubt his reelection chances dwindle.

This is why winning the trade war, and being perceived to have won, is so important. As negotiations have waged on, both Xi and Trump have played critical roles, with their public statements causing tremendous economic and political swings. Both leaders have set expectations that this negotiation is a zero-sum game.

Understanding that both Trump and Xi would suffer political repercussions should either take any perceived significant loss — and assuming that neither have any desire for a U.S.-China military conflict — where then does that leave us? It seems that we have three possible outcomes for Xi and Trump: return to the pre-trade war status quo, eliminate tariffs with some concessions, or continue and escalate tariffs with no concessions.

The payoffs for each are clear. A return to the pre-trade war status quo would likely ease market volatility in the short term, but Trump would pay a political price with his supporters for failing to deliver on a campaign promise, as well as suffer with the general U.S. electorate for triggering a seemingly meaningless and costly trade war in the first place. In this scenario, Trump might win by avoiding recession, but Xi would win more, as American gains on intellectual property and corporate governance would likely be an elimination of tariffs and Chinese participation (and meddling) in American companies would continue untouched.

The second outcome is less clear. China’s demands are to wholly eliminate tariffs, so it’s difficult to see what the Chinese would require as a concession. The U.S. could, at a minimum, require the Chinese to concede on intellectual property theft and partnership issues American companies have to deal with when operating in China. Some middle ground where the U.S. reduces tariffs on certain or all goods in exchange for such Chinese concessions would likely be the most advantageous long-term outcome for the U.S. in the long term and would allow both countries to avoid a recession. Both Trump and Xi could declare victory with minimal economic casualties.

The final possible outcome is a continued escalation of the trade war, meaning the two men exchange tariff body blows until someone knocks the other out — or, more likely, domestic exigencies force Trump out of the ring. Trump is constrained by reelection, the real threat of impeachment, Congress, his political base, and the greater strictures of the American liberal-democratic system.

Meanwhile, Xi, a president for life, has the control and leverage to withstand some economic downturn, prop up the Yuan in the short term, and deploy resources (or chicanery) at home and abroad to give the Chinese some economic wiggle room in a market readjustment.

The global economy is vastly interconnected, and the trade war doesn’t exist in a vacuum. In May, Trump’s tweets about a new round of tariffs on Chinese goods cost investors $500 billion. And, as we saw in the 2008 financial crisis, the American economy wasn’t the first, nor the only economy, to experience a recession that year. What this means is that any recession experienced by China will have cascading implications for the rest of the world, and since our economy has been operating on rocket fuel of late, any kind of slowdown could have untold negative outcomes for the U.S.

Buttressed by his authoritarian control over the economy, business, and government, Xi might at a certain point in the very near future, view escalation as preferable to concession, given that he only has to outlast Trump’s term as president. Escalating into a recession might even be preferable for Xi, as a recession in the U.S. would virtually guarantee a Democratic president. Xi has even voiced his own brand of protectionism, suggesting that less reliance on the U.S. is in China’s best interest.

Furthermore, as Thomas Gift noted in the Washington Post, Xi may view Trump as a vehicle to “sow division in the West.” Trump gives the Chinese a clear rival to push against, which would serve to strengthen Xi at home.

Timing matters as well. Simply threatening escalation could tank both the U.S. and Chinese economies, but Trump suffers politically at a higher rate and scale than Xi. If the American economy takes a prolonged downturn, Trump loses in 2020, full stop. A year out from the U.S. presidential elections, escalation isn’t clearly preferable for either party. But as U.S. elections near, the Chinese bargaining position grows stronger — with a short-term position across the table from a desperate Trump or a long position against a new president saddled with a weak U.S. economy, negotiating against and apologizing for the trade war of his or her predecessor.

Negotiating against China has always been difficult. They play by different rules, and from an intellectual property perspective, break the rules they agree upon with negotiating parties. However, for the U.S., the payoffs for the trade war continue to shrink as time passes. And at a certain point, Xi may decide to play the man rather than the odds, in which case the world economy suffers and we are all much less safe.

Tyler Grant is a lawyer in New York, published poet, and Washington Examiner contributor.