China can’t believe its luck in ‘containing’ Trump

Shortly after Mr Donald Trump met Mr Xi Jinping for the first time at his Florida resort, a senior Chinese government official wondered aloud if the United States president’s most important domestic political adviser really saw Beijing as an enemy, let alone ‘‘the’’ enemy.

“But Steve Bannon spent years (working) at Goldman Sachs,” the official protested in a conversation with the Financial Times. “He also reads widely and understands history. I don’t think he will be that radical.”

Last week the ruling Chinese Communist Party had its answer. In what turned out to be his swansong interview just before he was fired, Mr Bannon said the US was engaged in a winner-take-all “economic war” with China. He added that he fought “every day” with another Goldman Sachs alumnus, White House economic adviser Gary Cohn, and other administration figures who sought a more moderate approach towards dealing with America’s principal geopolitical rival.

Mr Bannon’s abrupt departure is a reminder that Beijing’s strategy for “containing Trump” has so far been a successful one.

But it is also a strategy that has benefited greatly from that most precious of commodities — luck.

As it stands, Chinese officials cannot believe their luck, beginning with Mr Trump’s decision to abandon the Trans-Pacific Partnership (TPP) trade agreement on his first full day in office.

The TPP would have locked the US and China’s largest Asian trading partners in a formidable economic bloc from which Beijing was initially excluded. In the likely event that the Chinese government later applied for TPP entry, Washington would have had its best opportunity to pry open the China market since Beijing asked to join the World Trade Organisation (WTO) in the late 1990s.

As one disappointed US diplomat told the FT earlier this year: “We threw away our best leverage over China on day one.”

A People’s Liberation Army general was as gleeful as the diplomat was deflated. In a video of an internal talk that leaked online, Gen Jin Yi’nan called the TPP decision a “grand gift, although (Trump) does not know it”.

In the months that followed Mr Trump’s TPP decision, Chinese officials breathed easier and easier as one threat after another melted away.

The US president did not discard the long-standing “One China” policy as suggested by his unprecedented December phone call with Taiwan’s president, Ms Tsai Ing-wen. He did not declare, as promised on the campaign trail, China a “currency manipulator”. And the deadline for a “100-day” trade and investment negotiation which began in Florida passed last month without a meaningful agreement.

While Mr Trump’s administration has just launched a probe into alleged Chinese theft of intellectual property, it will probably drag on for at least one year. As a result Beijing has achieved its first objective vis-a-vis Mr Trump: To avoid any economic disruptions with its most important trading partner ahead of a Communist Party congress this autumn that will mark the start of Mr Xi’s second term in office. The US president has, in other words, thus thrown out his second-best piece of leverage over Beijing.

China must still navigate difficult trade and investment negotiations with a US commerce secretary, Mr Wilbur Ross, and a US trade representative who both understand that the Chinese Communist Party’s unique brand of “state capitalism” poses challenges that the WTO is not equipped to handle.

In his confirmation hearing in June, US trade representative Robert Lighthizer demonstrated that he understood the perils of Chinese state capitalism as well as Mrs Hillary Clinton did. Mrs Clinton sounded her own alarm on the subject in a series of detailed speeches when she was secretary of state, and would probably have been laser-focused on the issue had she defeated Mr Trump in last year’s presidential election.

But Beijing’s showdown with Mr Ross and Mr Lighthizer will run for a year at least.

Mr Xi can live with that, especially when pitted against an American president whose competence and authority waste further away with each passing week. FINANCIAL TIMES

About the author:

Tom Mitchell is the Financial Times’ Beijing bureau chief