Trump and Xi’s Narcissism of Small Differences
The presidents of the United States and China are destined to clash, precisely because their economic worldviews are so similar.
President Donald Trump is returning home from an Asian trip during which the United States and China announced agreements worth over $250 billion. This allows Trump, who built much of his political identity on his supposed negotiating prowess and willingness to stand up to China, to return home triumphantly announcing his success at standing up to China.
Perhaps unsurprisingly, this supposed victory is entirely hollow. Most of the largesse comprises ongoing deals or ones unlikely to be executed; even if all of the $250 billion in deals is realized, it will have minimal impact on the structural United States trade deficit and does nothing to address the lack of market access facing foreign firms in China. Trump and Chinese President Xi Jinping carefully avoided any public discussion of more fundamental issues like market access to China by foreign firms.
Xi, who has staked his identity and regime upon projecting China as a great power on the same level as the United States and returning it to global prominence, had broader objectives in mind. In their joint press conference, Xi talked about “promoting coordination and cooperation among major countries” to demonstrate to his domestic audience he treated Trump as an equal.
But his talk about cooperation did little to obscure the underlying conflict between Trump and Xi — a conflict that stems from their fundamental similarities rather than their superficial differences. Trump the brash-talking reality TV star and real estate mogul and Xi the guarded, re-educated party leader seem to share little in common. But they have fundamentally similar geopolitical – and, more specifically, geo-economic — worldviews.
Trump and Xi are both strident nationalists. Trump’s infamous “Make America Great Again” catch phrase strikes the same chord as Xi’s sloganeering promotion “national rejuvenation” or the “Chinese dream.” Both romanticize historical eras when they their countries commanded more respect or power. Their visions of these periods may never have existed or censor out key historical details, but they both want to return to hazy replication of previous glories.
Nationalism informs their other agendas and how they pursue their goals. Flowing from their nationalist mindsets, Trump and Xi view the economic world in mercantilist terms. Trump prioritizes addressing the chronic U.S. trade deficit in the mistaken belief this is a sign of economic weakness and that surpluses equal strength. Xi prioritizes maintaining closed Chinese markets while prying open international markets to drive the trade surplus required by the capital accumulation model of economic growth.
Their latent nationalist mercantilism informs how and what objectives each pursues. Economic negotiations are seen as zero-sum games rather than attempts to expand the range and level of opportunities. Any agreement to open up markets implies a national weakness that may exacerbate the measure of national strength through the trade surplus. This approach narrows opportunity for agreement between countries.
Beyond how Xi and Trump negotiate, mercantilism decides what they will negotiate. Gone are the days of negotiating sweeping, fundamentally revolutionary agreements, with the leaders instead focusing on transactional bargaining that accomplishes no larger goal. In the spring, Trump and Xi announced a 10-point agreement on narrowly focused issues such as U.S. beef exports and Chinese bank investigations in the United States. Described as a “herculean” effort, this agreement contained no larger objectives remaining purely transactional. Market access issues were similarly absent from the recent package of deals. Even China’s announcement that it will allow foreigners to own Chinese banks seems like an attempt to persuade foreigners to bail out an increasingly shaky financial system rather than a principled shift in market access. Negotiation between the two major global powers focuses on specific transactions rather than advancing broad principles.
This shift bears significant consequences for the state of the bilateral economic relationship. Despite Trump’s focus on addressing the trade deficit with China, it is simply an impossibility to arrest a $350 billion deficit via individual transactions negotiated by the president. Absent a broader agreement, either on a bilateral basis or, preferably, a multilateral one, transactional negotiation will fail to prevent an expansion of the trade deficit worsening Chinese-U.S. economic relations.
It also further entrenches Chinese interests in an illiberal world order. For all the hand-wringing over Trump’s isolationist rhetoric, the world has feted Chairman Xi’s closing of Chinese markets and nationalist industrial policies. The longer Trump focuses on transactional negotiations rather than principles, the more entrenched illiberal Chinese market practices will take hold and dominate. Perversely, Trump attempting to reduce the U.S.-China trade deficit one transaction at a time is further entrenching the illiberal market practices China holds at home and projects abroad.
This shift in substance and style between the two major powers is not lost on the rest of the world. Historically, the United States acted as a liberalizing influence and pushed others to join multilateral agreements. We are currently witnessing a fragmentation of interaction, with many states moving negotiations into more bilateral settings, retreating from multilateral institutions, and struggling in reaching broad consensus. Other countries follow the lead of the bipolar leaders, moving into transactional negotiation rather than pursuit of liberal principles. The South Korean dispute with China over hosting the THAAD anti-missile system in Seoul has focused little on the larger regional security threat, North Korea, and more on transactional negotiations over Beijing’s targeting Lotte outlets and restricting travel.
The primary tragedy of Trump’s bilateral, transactional negotiation approach to confronting Chinese protectionism is that he would have widespread support if he assembled a coalition to truly tackle the issue. Domestically, Trump would have broad support from Democrats in Congress and labor unions, as well as Republican national security and business interests. Internationally, Trump would receive broad support from countries that face the same type of rampant protectionism as U.S. firms. South Korean, Japanese, Australian, German, and United Kingdom officials have all complained about China’s strident protectionism .
Even the Trans-Pacific Partnership agreed to recently by a multilateral coalition of countries is primarily a response to Chinese protectionism. It was originally spearheaded by the United States under the Barack Obama administration and then killed by Trump. Charges that Trump is an economic protectionist overstate the shift in policy, but he clearly offers no global leadership or the forceful liberal rebuttal the world seeks to Chinese nationalism. Simplistic transactional negotiation may allow a short-term gain, but it obfuscates the larger economic objectives of the coalition of countries the United States once led.
Trump’s reluctance to assemble a broad coalition stems at least in part from his clear recognition that there are costs associated with the privileged U.S. position of global leadership. Free trade and investment markets bring large net benefits but also impose costs. The U.S. dollar has become the dominant global currency at least in part because it has willingly run large current account deficits. Coupling the world’s largest economy with one of the most open markets continually displaces workers, which now compete with industries around the world. Trump’s domestic voting base consists in key states of workers either displaced by global competition or not benefiting along with other groups.
Trump may be mocked for complaining about the costs associated with U.S. leadership, but they are real. The focus, however, should be on mitigating the risks associated with global leadership and market openness, of which the United States has been arguably the biggest beneficiary.
This points to the clear traditional divergence in the visions between historical United States and projected Chinese leadership. The United States was historically willing to incur costs and risks in defense of liberal principles, and China is unwilling to incur neither costs nor risks for principles. The United States was willing to bind itself to principles at the risk of losing in dispute resolution forums like the World Trade Organization, which has happened sometimes, to the consternation of the Trump administration. Conversely, playing its size advantage, China commits itself to no binding principles, preferring bilateral negotiations instead. Whereas the United States allowed itself to run a large current account deficit and the U.S. dollar became the global currency, China insists on running trade surpluses, insisting the yuan will become a global currency despite the world’s inability to freely trade in the currency.
If the Trump-Xi worldview of economics and negotiations takes place, we can expect not just great power transactional bargaining, but also a drift away from a principled liberal global order. Brexit, NAFTA, and the South China Sea are a small list of examples where bilateral nationalistic transactional bargaining dominates over principled liberal order negotiation. This implies greater fragmentation as countries seek out other self-interested parties whose specific position matches in some way their own, even as China and the United States negotiate individual transactions.
Former Obama State Department appointee Anne-Marie Slaughter wrote that the post-World War II order benefited from American creation of administrative international institutions that broadly mirrored domestic institutions. Though significant amounts of the costs associated with creating and nurturing these nascent institutions in the wake of World War II fell to the United States, it gave the U.S. great influence to establish standards and formulate the direction of policy founded on liberal principles.
A retreat by the Trump administration into isolationist nationalism, and an unwillingness to recognize the enormous benefits derived from the openness championed by U.S. leadership, plays directly into the hands of Chinese strategy, where size matters most. Engaging China on bilateral transactions fails to solve the fundamental problem and sends a clear message about the lack of U.S. interest in defending the liberal order the country once built.
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