The constantly changing dynamic of U.S.-China relations challenges the most acute observers and experts to explain what is exactly going on. Of course, U.S. President Donald Trump’s standard “disruptive” approach to diplomacy and negotiations, in which he is seemingly operating in an inchoate fashion, adds to the complexion. Trump now appears to be willing to find a compromise with Chinese leader Xi Jinping. We must realize that this could change overnight.

There are crucial diplomatic steps being taken. The question is whether Xi is prepared to move forward after discussions between U.S. Secretary of State Mike Pompeo and Chinese Foreign Minister Wang Yi in Bangkok. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin had “productive” phone conversations with Vice Premier Liu He and Commerce Secretary Zhang Shan that led to Trump delaying some of the new tariffs on Chinese imports until Dec. 15 and a 90-day extension of U.S. business relations with Huawei.

Critical to this diplomatic process was the meeting held in New York on Aug. 13 between Pompeo and Yang Jiechi, director of foreign affairs of the Community Party of China (CCP), in which they had an extended exchange of views on the bilateral relationship. The result of the meeting is not publicly known. However, the discussion focused on trade, Hong Kong and Taiwan. In Bangkok, North Korea was one of the discussion points. Pompeo emphasized that the United States does not have a containment policy toward China.

Nothing is finalized, but it appears that a directionality of Chinese thinking is emerging. First, the Chinese president and the CCP leadership are caught in a bind — Xi knows he needs to reform the Chinese Marxist operating system. What this means remains an open question. However, the crisis in Hong Kong, Taiwan, South China Sea and U.S. security/trade talks pose a series of challenges that the Chinese are trying to address. Domestically, Xi remains unchallenged as the leader of China. But certain developments could occur that shake the foundation of the regime.

Status of the talks

Events in Hong Kong continue to stress the Chinese Marxist system of “One country, two systems.” Beijing began implementing the CCP’s plan for the eventual incorporation of Hong Kong into the Chinese mainland. The extradition bill was the most dramatic step that is being resisted by the people of Hong Kong. The Basic Law that governs Hong Kong was premised on the “One country, two systems” foundation and there’s an attempt to keep the Basic Law intact. Nothing is guaranteed.

To place “maximum pressure” on China, Trump’s determined approach is the use of public diplomacy. Publicly, Trump is appealing to Xi and the CCP leadership not to repeat the Tiananmen Square massacre. He called for a “humane” solution. This message appears to be resonating in Beijing although Chinese paramilitary forces are being trained in Shenzhen to crack down on the peaceful demonstrators.

But that’s not the entire picture. The geopolitical landscape is being leveraged by Trump to negotiate a favorable trade agreement. Personally, the human rights issues and political freedoms for the Hong Kong people do not appeal to Trump, a business pragmatist who will use any leverage to achieve a trade agreement.

First, Trump is clearly leveraging the following issues for negotiating a favorable deal:

Use the Hong Kong protests to appeal to Xi directly. Trump praised Xi’s restraint and called for a “humane solution.”

Stop the Fentanyl drug crisis killing Americans. Xi pledged full cooperation. U.S. law enforcement and elements of U.S. intelligence believe China is conducting a modern Opium War against the U.S.

End detention of Canadian former diplomat Michael Kovrig and businessman Michael Spavor. Their detention was in response to the arrest of Huawei chief financial officer, Meng Wanzhou. Trump spoke with Canadian Prime Minister Justin Trudeau about this issue.

Build up Taiwan militarily with an $8 billion arms sale, including 66 F-16-V fighters, which offset some of Chinese aerial superiority and enhance Taiwan’s deterrent posture.

Appointed Elniger Iltebir, a Uighur American, as National Security Council director for China. Born in Xinjiang province and raised in Turkey, she’s a strong advocate for the Uighurs in China.

Moreover, Trump is putting personal pressure on Xi to demonstrate his leadership and decision-making power. In the official discussions Vice Premier Liu He, Lighthizer, Chinese Foreign Minister Wang Yi and Pompeo all agreed that Trump and Xi are ready to make a deal. To provide Xi with an incentive that helps China, Trump delayed the tariffs and granted the Huawei reprieve.

U.S. intelligence foresees that China is capable of eventually absorbing Hong Kong. The timetable is 28 years for the official takeover. CCP leaders and the Hong Kong/Macao Affairs Office are planning the next steps for incorporating Hong Kong and Macao economically and culturally.

In Beijing, there were deliberately leaked proposals by the State Council that the city of Shenzhen should be in the forefront of integrating Hong Kong and Macao, emphasizing that Tencent and Huawei, two high-tech companies, should play a greater role in the Hong Kong economy. Moreover, Hong Kong, as an international financial center, has been reduced in financial transactions as Shanghai becomes the focus for Chinese international financial transaction and domestic listing of public companies on the Shanghai Exchange.

‘Flexible One China’ policy

Trump is pursuing a “flexible One China” policy. For Trump, this bit of strategic ambiguity places China in an awkward position handling Taiwan, Hong Kong, the Philippines and the U.S. Navy’s maritime operations in the South China Sea, simultaneously.

Additionally, Trump is using two congressionally mandated commissions to maintain pressure on Beijing. The International Commission on Religious Freedom is being supervised by Vice President Mike Pence, who previously was told by Trump not to speak publicly on this issue. The second commission Pompeo is overseeing is the newly established Commission on Unalienable Rights, chaired by Harvard law professor Mary Ann Glendon, a former U.S. ambassador to the Vatican under President George W. Bush.

Importantly, the appointment of Iltiba as the NSC’s China director sends a clear signal to China that suppression of the Xingiang Uighurs is unacceptable. Trump is not personally committed to these two commissions but will utilize them for leverage in the trade talks.

Trump’s focus remains the trade imbalances. His pragmatic business approach is the foundation of his policy thinking. Trump signaled to Xi that the planned Aug. 27 discussion could be the beginning of setting the agenda for trade talks in September. Keep in mind that U.S. Commerce Secretary Wilbur Ross stated: “I don’t believe a date has been set. There is no quid pro quo.” Trump is using Ross to signal to China, “Don’t play games” — let’s get serious about negotiations.

Implications for Japan

Japan now has a favorable position to negotiate with Trump. First, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and Japan-European Union economic partnership agreement provide Tokyo with a solid foundation for negotiations. Trump needs a trade deal with Japan and is prepared to lift Section 232 national security findings on auto imports if Japan reduces tariffs on U.S. agricultural imports.

Trump also wants Japan to expand its global foreign direct investments in coordination with Washington, to balance Chinese investments in Africa and other areas involved in Xi’s Belt and Road initiative.

Trump will likely eliminate the national security concerns about Japan’s auto sector. In addition, he needs Congress to support the trade deal with Japan and approve the United States-Mexico-Canada Agreement. This will put more pressure on China and provide Japan with strategic opportunities to expand its international standing.

Paul Goldstein is the founder, president and chief executive officer of Pacific Tech Bridge, a consultancy based in Arlington, Virginia, that specializes in global research, cybersecurity and U.S.-Japan corporate cooperation.

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