Trump and Xi Both "Lose-Lose" - Bloomberg

Trump and Xi Both "Lose-Lose"

Neither the U.S. nor China is well-served by ignoring the issues between them.

By Michael Schuman

November 10, 2017,

A little too buddy-buddy. Photographer: Thomas Peter/Getty Images

China’s President Xi Jinping likes to talk of “win-win” diplomacy and this week’s official visit by President Donald Trump to Beijing would seem to fall into that category. Trump walked away with a very tweetable $250 billion in deals -- covering everything from aircraft to soybeans -- to brag about to his domestic supporters. Xi, like so many Chinese leaders before him, appears to have shipped off the barbarian chieftain with a few baubles to distract him from harassing the empire.

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The reality, though, is that the Trump-Xi summit was a “lose-lose” proposition. By focusing on headline-friendly deals, the two leaders shunted aside the more difficult economic challenges facing the U.S.-China relationship -- and set back the long-term interests of both their nations.

Sure, we shouldn’t sniff at a quarter-trillion dollars -- even if many deals, merely in the memorandum stage, may never materialize. Whatever develops will be a boon for U.S. businesses and farmers. And Xi benefits, too. By appeasing a White House obsessed with trade deficits, Xi could deflate, at least temporarily, mounting pressure in Washington to take action against unfair Chinese business practices.

But there’s the rub. Trump didn’t do U.S. businesses any favors by failing to address the major issues they face in China. American CEOs want the Chinese government to open its gargantuan market more widely to foreign business, better protect their intellectual property, stop extracting technology in exchange for access and treat their companies as equals to their Chinese rivals. Trump barely flicked at any of these problems (at least publicly). In fact, he went even further, practically absolving China of any responsibility for treating the U.S. unfairly. “I don’t blame China,” he said. “After all, who can blame a country for being able to take advantage of another country for the benefit of its citizens? I give China great credit.”

That made for many enthusiastic handshakes during Trump's Beijing jaunt. It left U.S. companies no better off, though, with little support from their own president on issues that could determine their ability to compete -- even survive -- in the world’s second-largest economy. For his part, Xi was only too happy to dodge. Trump's soft-glove approach has ensured China can continue to pursue a nationalistic agenda to upgrade key industries, amply subsidized by the state.

Yet Xi shouldn’t feel too proud of himself. The same reforms Trump should have been pushing would help the Chinese leader achieve his goals, too.

Opening China’s domestic market would enhance competition, in the process improving the performance of Chinese companies. That would help control risky debt and enliven sagging productivity. A more open economy would also encourage greater consumption -- also a stated Beijing policy -- which would in turn give a boost to healthier growth.

Stricter protection of intellectual property would entice foreign firms to import much-needed technology into China and spur local entrepreneurs to innovate -- both critical if China is to leap into the ranks of the world’s most advanced economies. And by taking such steps, China would go a long way towards dissuading the U.S. and other governments from erecting protectionist hurdles to Chinese business. That would ensure Chinese companies the continued free access to foreign markets they need to expand internationally, thus fulfilling yet another of Xi’s economic priorities.

Perhaps Xi will eventually arrive at the conclusion that such reforms are indeed necessary. But some swift kicks from the U.S. could speed that process along. Without external pressure, Xi has a lot less incentive to undertake changes that would transform the country’s state-led economic system and threaten players who currently benefit from it.

Of course, such high-profile summits are often more about cooperation than confrontation. Once back in Washington, Trump may toughen his stance and press Xi harder. Perhaps Xi, the country’s unchallenged leader after last month’s Communist Party congress, will march forward more quickly on reform as many China watchers hope.

But those are all maybes. What was missed on Trump’s trip to China was an opportunity for the world’s two most powerful men to tackle some big decisions on issues that could shape not just the future of the U.S.-China relationship, but the growth prospects and competitiveness of both economies. That truly would have been a “win-win.”