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Xi seen having few good options after Trump's G20 ultimatum to meet or else

by Peter Martin

Bloomberg

By now, Xi Jinping is used to Donald Trump’s tariff threats. But the U.S. president’s latest ultimatum is personal, and the Chinese leader’s response could have far-reaching consequences for his political future.

Trump on Monday said he could impose tariffs “much higher than 25 percent” on $300 billion in Chinese goods if Xi doesn’t meet him at the upcoming Group of 20 summit in Japan. China’s foreign ministry — which usually refuses to provide details of meetings until the very last minute — declined Tuesday to say whether the meeting would take place.

The brinkmanship puts Xi — China’s strongest leader in decades — in perhaps the toughest spot of his six-year presidency. If Xi caves to Trump’s threats, he risks looking weak at home. If he declines the meeting, he must accept the economic costs that come with Trump possibly extending the trade conflict through the 2020 presidential election.

“Whether they meet or not, none of the possible scenarios are good for President Xi or the economy in the long run,” said Zhang Jian, an associate professor at Peking University. “You don’t have a good choice which can meet the needs of the Chinese economy or Mr. Xi’s political calculations.”

Prodded by hawks in Washington to take a “whole of government” approach toward China, Trump may make it harder for Xi to compromise at the negotiating table. The U.S. administration’s efforts to sell arms to Taiwan and criticize China’s mass detention of ethnic Uighurs in the remote far west of the country are fueling nationalist fears in Beijing that the U.S. wants to weaken and contain its biggest rival.

The G20 summit in late June is one of the last chances for Trump and Xi to head off a conflict between the world’s biggest economies that appears to be worsening by the day. Besides tit-for-tat tariff hikes, the U.S. has blacklisted Huawei Technologies Co. and threatened other major Chinese tech firms, while Beijing is drawing up a list of “unreliable entities” that could face restrictions.

At the last meeting between Trump and Xi at the G20 in Argentina last year, they emerged with a 90-day truce that opened up space for more talks. Those collapsed last month after Trump accused China of reneging on parts of the agreement, leading to an increase in tariffs and stronger actions against Huawei.

The arguments for Xi to meet Trump mostly revolve around the need to prevent greater economic damage. China’s imports tumbled in May, underscoring domestic weakness that could hurt global growth.

Stalled talks

For China, 25 percent tariffs could result in a drag of nearly 1 percent on growth by 2021 if they remain in place, according to Bloomberg Economics.

What’s more, Chinese officials increasingly feel working-level talks aren’t leading anywhere. One Chinese trade official said talks with the U.S. had reached a point where no further progress could be made without the intervention of the two presidents.

And besides, Trump has a track record of escalating tensions dramatically before cutting a deal in a personal meeting.

“The best approach for China is to not reply to Trump’s words, but wait a few days and then announce that Xi will attend the G20,” said Wang Peng, associate research fellow at the Chongyang Institute for Financial Studies at Renmin University of China. “Meeting Trump is risky for everybody, but Xi can manage and control that risk.”

Xi, however, also has reasons to avoid a meeting with Trump. China has repeatedly said it won’t be bullied or pressured into negotiating, and Xi could look as if he’s giving Trump a win by meeting him after an explicit threat.

Since talks collapsed, China’s state media have ramped up nationalist rhetoric. The Communist Party’s flagship People’s Daily newspaper ran a commentary in May saying China will never make decisions that “give up power and humiliate the country,” a phrase used in textbooks to describe the treaties China signed mostly in the 19th century.

Ignoring threats

“I don’t think the threat will work,” said He Weiwen, a former commerce ministry official who is now a senior research fellow at the Center for China and Globalization. “China will reiterate that the U.S. side must have sincerity if they want the talks to continue.”

Previous interactions with Trump don’t help much in making the decision. When Trump flirted with a more formalized relationship with Taiwan early on in his presidency, China refused any contact until he reaffirmed the U.S. “one China” policy. Within weeks, Trump caved.

Still, Xi has also watched as Trump repeatedly escalated a trade war despite hailing a personal friendship between the two men. And even assuming they do meet, the best outcome could be another temporary truce that only prolongs the uncertainty.

Either way, Xi has a lot riding on the decision. He became China’s most powerful leader possibly since Mao Zedong after scrapping term limits last year, a move that could backfire if the economy tanks.

“You can hardly blame anyone else for the conflict between China and the United States — he is the ultimate decision-maker,” said Zhang of Peking University. “Remember that we believe he wants a third or fourth term. If in 2020 you see the Chinese economy suffer, then his road to a third term looks less rosy.”