November 30, 2018 / 10:24 AM / in 6 months

Breakingviews - China and U.S. can give a little in Argentina

U.S. President Donald Trump and China's President Xi Jinping shake hands after making joint statements at the Great Hall of the People in Beijing, China, November 9, 2017. REUTERS/Damir Sagolj

HONG KONG, WASHINGTON (Reuters Breakingviews) - It will take two to tango at the G20 summit in Buenos Aires. President Donald Trump and China’s Xi Jinping’s supper appointment is at risk of yielding nothing. Beijing hints it won’t compromise on its state-directed economic model; Washington hardliners believe their government has already conceded more than it should. Both are wrong.

Chinese negotiators have struggled to bargain with Trump, who often changes his mind. Xi faces other diplomatic risks too: first, the moral hazard of making concessions in exchange for Washington relaxing duties, thereby proving tariffs to be an effective weapon. Then Xi has to worry that hardliners like Trump adviser Peter Navarro will sabotage compromises.

American diplomats, for their part, may worry Beijing will sucker Trump into accepting incremental tweaks to ownership caps and the like, not structural change.

Each side can do better. Beijing, facing around $300 billion in officially documented bad debt, needs structural change. Chinese growth was slowing, and markets were correcting, well in advance of Trump’s tariffs.

Xi could “concede” changes he needs to implement anyway. For example, he could start finally satisfying long-unmet promises China made as condition of entry to the World Trade Organization, like allowing foreign companies into the telecommunications sector, and halting procurement discrimination. In the longer run, the government has no choice but to stop propping up crumbling state zombies with cheap credit - a major source of foreign frustration – so why not get started?

There are plenty of barriers the White House could lower without sacrificing security. The United States is no free-trade purist - its peanut farmers, for example, receive a whopping $340 in subsidies per acre. In 2017 alone Washington added 90 protectionist measures. Some of them – like those targeting solar imports – defend economically insignificant U.S. industries.

Friendly gestures would help too. The United States could join Beijing’s new infrastructure bank, for example. The campaign to restrict Chinese students access to stateside universities could and should be reversed, provided Communist Party agents back out of student associations. And the screening process for Chinese investments in American companies can be made more transparent.

There should be plenty to talk about over Argentinian steak. After such an acrimonious year, the trick will be breaking the ice.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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