Trump May Be Meeting Xi Far Too Soon, Former U.S. Official WarnsBloomberg News
Loevinger says Trump unlikely to get the results he needs
U.S. photo ops will play well for Xi back home, Loevinger says
The first meeting between the presidents of the world’s two biggest economies this week is likely to serve the needs of China’s Xi Jinping more than those of Donald Trump, says a former China specialist in the U.S. Treasury Department.
By holding the meeting so soon after moving into the White House, Trump’s unlikely to achieve the results that will be expected at home, while Xi will benefit from being seen as managing the U.S. relationship, said David Loevinger, now an analyst at fund manager TCW Group Inc. in Los Angeles.
"It meets Xi’s needs to go to the U.S. and have some photo ops," Loevinger said. "The new U.S. administration has raised expectations even higher by emphasizing their negotiating prowess and characterizing their predecessors as getting fleeced by the Chinese. Getting deliverables out of the Chinese is like opening a can of tuna with a butter knife. You can do it but it’s not easy, fast or pretty."
Trump tweeted last week that he expects the talks with Xi to be "very difficult." Loevinger doesn’t foresee any possibility of significant concessions from Xi until at least after key officials are reshuffled at a Communist Party congress later this year. Even beyond that, optimism that China will adopt more open economic and trade policies has faded, he said.
Before joining TCW in 2012, Loevinger served as senior coordinator for China affairs at the treasury department, including the U.S.-China Strategic and Economic Dialogue. Here are edited excerpts of a recent interview in Beijing:
‘A Bit Risky’
Question: How risky is it for Trump to hold a summit with Xi so soon after taking office?
Answer: It’s a bit risky for the administration to tee up a China summit so quickly. Buddy-bonding over golf works with long-time allies, but there’s a strong demand for deliverables whenever a Chinese president comes to town, particularly when a new administration has raised expectations about its negotiating prowess. I just had lunch with a Chinese government official and they’re still trying to work out who they should be talking to in the administration. It takes months of preparations and negotiations to set up a summit where you have real deliverables and they just don’t have their team in place. They haven’t yet expressed an over-arching China policy so the risk for the new administration is you do it too quickly and it’s kind of set up more favorably to what Xi wants than to what the new president wants.
Question: Given the U.S.’s massive trade deficit with China, doesn’t Trump have a point about the U.S. being fleeced?
Answer: The trade deficit is absolutely the wrong measure. The current account is a better measure than the merchandise trade deficit. China’s current-account surplus has gone from double digits to below 3 percent, and as China ages and its savings go down that’s going to come down further. We’re in a very different place than we were before the financial crisis, when China had a significantly undervalued currency and a massive current-account surplus and China was intervening heavily to prevent the currency from appreciating. Overall trade balances are impacted by how much countries save and how much they invest. If the US wants to boost investment and growth and continues to have such a low savings rate it’s going to have a trade deficit.
Question: Is Xi able to make concessions?
Answers: Certainly between now and the party congress there’s very little appetite to poke any political hornets’ nests. There remain powerful vested interests standing in the way of reform and it will be tough to roll those guys in the run up to the party congress. It helps Xi politically to show that he’s managing the U.S.-China relationship but it helps Xi even more to show that he’s defending Chinese interests in the face of foreign pressure. So I don’t expect anything until after the party congress.
Question: What then?
Answer: That remains the big question. There’s less optimism now than there was before that once he got past the party congress we would then see a period of the next stage of opening up and liberalization. If the U.S. starts to impose trade restrictions, and particularly restrictions that are WTO-illegal, then politically it becomes more difficult for the Chinese to open up. The Chinese have to make the case that opening up is in their own interest and they’re doing it because it’s good for China and not because foreigners are putting pressure on.
Question: Given Xi has little room to maneuver and Trump has raised expectations that the U.S. will not tolerate trade deficits, are the nations on a collision course?
Answer: It’s early, but look what happened with the "One-China" policy: Trump raised it and Trump retracted it. What’s troubling is the long-standing coalition that’s supported open trade and investment policies in the U.S. has disappeared. For a long time you had the center of both Republican and Democratic parties generally supportive of open trade and investment policies. Both Republican and Democratic administrations pursued openness through Nafta and the World Trade Organization and the Trans-Pacific Partnership, and in the most recent election neither party was promoting them. The risk is to the extent that the new administration runs into problems promoting its health-care and tax agendas, and the one area where there appears to be broad partisan support is for more trade barriers. This is an area where the Democrats will probably support the administration.
Question: Is that the worst-case scenario?
Answer: The worst-case scenario is that the U.S. takes some far-reaching measures that are deemed WTO-illegal and it loses in a WTO dispute panel and it ignores WTO rules. Then the largest economy in the world would say we no longer feel compelled to abide by the WTO.
Question: How likely is it that the presidents can work things out?
Answer: Ever since Clinton, every U.S. president has talked tough during the campaign but once they were in the Oval Office they found out eventually that they need China’s cooperation in order to make progress on a whole number of issues vital to U.S. national interests. This administration won’t be any different.
— With assistance by Kevin Hamlin