Facing continuing street protests, Chile has canceled a November trade summit at which President Trump and Chinese President Xi Jinping were expected to sign stage one of a two-stage trade deal. Still, a near-term agreement remains likely.
The key driver toward a deal remains that which it has been for the previous 10 months. Namely, Trump and Xi’s particular needs to reach such a deal. As important, both leaders now seem to have accepted they won’t be able to secure the one-sided victory each previously aspired to. They’re ready to compromise.
Trump’s interest lies in using a trade deal to boost investor confidence and secure continued economic strength. If he has strong economic headwinds at his back, Trump believes he’ll be able to present a more compelling argument that his downsides (Ukraine-related impeachment inquiry, his unpredictability, etc.) are outweighed by the benefits of his economic stewardship. With record-low unemployment rates and stable growth, Trump already has a narrative with which to sell himself for a second term. With Democratic Party 2020 candidates offering increasingly expensive government spending and tax plans, Trump can use a strong economy to pivot himself in separation from those candidates. And considering the continuing lethargy of the eurozone, Trump wants to insulate the economy from global pressures.
Xi’s need is similar. But unlike Trump, Xi doesn’t have the benefit of a strong economy at his back. China is currently reverberating under an evacuation of capital, rising wage costs, and stubborn productivity rates. Xi knows that the longer he waits to cut a deal, the greater pain he invites with no serious prospect of future remedy.
Yes, Xi would love to wait Trump out in the hope of dealing with a more conciliatory American president in the vein of President Barack Obama. But China’s economy is under such significant pressure that Xi can no longer afford to wait. In order to fulfill his ambition of a new Chinese international order in place of America’s, Xi’s economy must grow at outsize rates. If he waits to cut a deal in the hope that Trump loses and Trump then wins, the American president will be in a position to drive a far harder bargain than he would now. At that point, Xi will have to accept that deal or face an economic depression. Xi’s new willingness to reach a deal here proves his concern that Trump has a good chance of being reelected.
Ultimately, then, this stage-one deal remains very likely. It will seek two outcomes: suspending future tariffs and repealing some of those presently in force in return for a Chinese commitment to increase United States exports. Both leaders seem comfortable with deferring more complex issues, such as those pertaining to intellectual property, to a future date.
