China

Trump and Xi Could Break the System

The two leaders have one thing in common: a disdain for rules.

A law unto himself.

Photographer: JOHANNES EISELE/AFP/Getty Images

The world’s two most powerful leaders appear to come from different planets. Real estate billionaire Donald Trump craves media attention, loves golf and governs through Twitter. Communist Party boss Xi Jinping evades the public, shutters golf courses and bans Twitter. Sure, when they meet for their first summit at Trump’s Florida club on Thursday, the two men may discover some mutual interests -- say, a shared contempt for the New York Times. But they seem unlikely to hit it off.

Trump and Xi do have one critical attribute in common, though -- one that doesn’t bode well either for U.S.-China relations or the future of the global economy. Neither man likes playing by the rules.

QuickTake China's Pain Points

For both, that’s been a key part of their success. Trump flouted the usual conventions on his dash to the White House, instead resorting to controversial, often completely false, comments that his rabid supporters ate up as straight talk. Meanwhile, Xi has amassed great clout by breaking with Chinese political tradition and shifting away from the government-by-committee favored by his predecessors in favor of a Mao-style, centralized leadership.

When it comes to the global economy, these predilections could prove quite dangerous. Economic relations since the end of World War II have been governed by widely accepted norms and backed by solid institutions such as the International Monetary Fund. Since the 1970s, Washington has striven with some success to convince Chinese leaders that their economic interests are best served by participating in that system. China has become highly integrated into the U.S.-led global economy, and its rapid ascent in wealth and power is one result.

But, as Trump pointed out with some exaggeration during the campaign, China has never completely followed the rules of that system either. For long stretches, policymakers manipulated China's currency to promote its exports at the expense of those from other nations. China enjoys greater access to the U.S. and European markets, particularly in terms of investment, than it grants to Western companies in China. The country’s record on protecting foreign intellectual property is thin. It’s built up a vibrant internet economy behind a firewall that shuts out Facebook, YouTube and many other foreign websites.

Under Xi, the state has pressed down even harder on the scales in favor of Chinese companies, particularly state-owned enterprises. Ignoring complaints from its trading partners and its own pledges, China has kept zombie steel mills afloat, dumping their excess production on world markets. Amid a state-led quest to develop high-technology industries, the government has offered lavish subsidies to new industries such as electric vehicles to help them beat out foreign competition.

China also hasn’t always abided by the norms of the international institutions it’s sought to join. In 2016, the International Monetary Fund included the Chinese yuan in its basket of currencies that make up the fund’s special drawing rights. Yet Chinese policymakers have generally reneged on their promises to allow the currency to trade more freely. In its latest report on Chinese compliance with World Trade Organization rules, the office of the U.S. Trade Representative raised concerns that China isn’t meeting its obligations on a wide range of issues, from tax policies to export restrictions to product standards. “There is increasing disgruntlement among some trade officials that China may be gaming the system,” says Mark Wu, a Harvard Law School professor who has studied China and the WTO.

For his part, Trump doesn’t seem to think that system is adequate to the task of reining in China. The Obama administration tried pressuring Chinese leaders through WTO cases, as well as regular bilateral dialogue and the occasional imposition of tariffs. Trump, on the other hand, has threatened to impose stiff tariffs and taxes on imports from countries like China to penalize them for supposed unfair trade practices.

Indeed, Trump’s administration has indicated it may outright ignore WTO rulings that it considers run counter to U.S. interests. The U.S. president has also shown scant regard for Washington’s past economic commitments. He’s already scrapped the Trans-Pacific Partnership trade pact and is demanding changes to the long-standing North American Free Trade Agreement. For deputy under-secretary of the Treasury, Trump chose a sharp critic of international organizations like the IMF.

Neither Xi nor Trump seems to appreciate how much of their power is based upon the very global order they both ignore so readily. China simply would not be China without the benefits it’s gained from the free trade, free enterprise and global security fostered by the U.S. Trump doesn’t understand how the foundation of U.S. global power is built upon the norms and institutions he belittles.

So the big question is: If the leaders of the world’s two most important countries have little respect for global institutions and the norms they uphold, then who will? This week’s summit could be the start of something very ugly -- a descent into the sort of beggar-thy-neighbor selfishness the world hasn’t witnessed since the 1930s. Trump has already warned his conversation with Xi will be “difficult” since he apparently intends to confront the Chinese leader on contentious issues like trade and jobs. Meanwhile, Chinese officials are already acting defensively and pointing fingers back across the Pacific.

Despite their obvious differences, Xi and Trump are ultimately members of the same tribe -- nationalists who wrongly believe there’s a distinction between doing what is good for the world and good for their countries. All of us could suffer the consequences.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Michael Schuman at contactschuman@gmail.com

    To contact the editor responsible for this story:
    Nisid Hajari at nhajari@bloomberg.net

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