What Can Trump’s Economic Team Accomplish in Beijing?

A grand bargain between the world’s two largest economies is not impossible. Many global investors are interpreting as a positive signal the fact that Trump’s is sending his entire team of top economic advisers to Beijing next week—not just Treasury Secretary Steven Mnuchin, but also U.S. Trade Representative Robert Lighthizer, national economic adviser Larry Kudlow, and senior economic adviser Peter Navarro.

What might this Gang of Four accomplish? It’s not easy to predict. For one thing, all four think differently about China trade issues. Lighthizer and Navarro are considered “China hawks,” who believe that only the threat of sanctions will compel China to stop stealing U.S. technology and grant wider market access to U.S. firms in China’s market. Mnuchin is thought to be a “dove,” who fears the market fallout of a protectionist trade war. Kudlow is something of an enigma—a life-long advocate of free markets who, since joining Trump’s team has emerged as an ardent defender of import tariffs.

Notably none of the four has any significant previous professional experience in China. (Navarro, a Harvard-trained economist whose early research focused on corporate charity, has reinvented himself as China expert, and is the author of books such as The Coming China Wars and Death by China. But, as this piece in Foreign Policy points out, Navarro doesn’t speak Mandarin, has never lived or worked in China, and has never spent much time the country.)

Further complicating matters is that not even Trump’s senior economic advisers know what Trump wants from China. What are the terms of a deal he’d be willing to embrace as a win? Is it a reduction of America’s bilateral trade deficit? And if so by how much? Is it increased China market access for U.S. firms? If so, which ones and by how much? Is it intellectual property protection for American tech firms? If so, what kind of protections and how much would be enough? Will a deal require Xi to roll back his support for China’s state-owned companies? Or, to avert a trade war, will Trump’s economic team have to win concessions from Beijing on all of the above?

Washington Post columnist Josh Rogin argues Team Trump should hold out for that last option. He’s worried they’ll get suckered into endorsing a deal with only token concessions.

Meanwhile, the game of chicken between the U.S. and China over trade and technology gains momentum every week. The latest irritant: reports that the U.S. Justice Department is investigating Huawei Technologies for violating U.S. sanctions on Iran. Neither the Justice Department nor Huawei are commenting officially. But the mere suggestion that Huawei, China’s largest telecommunications manufacturer, might be found guilty of the same infractions that prompted the U.S. to slap a seven-year ban on U.S. sales to ZTE Corp., China’s second-largest telecom maker, were enough to tank Huawei’s stock price.

After a string of U.S. acquisition attempts failed to win approval from the U.S. Treasury-led Committee for Foreign Investment in the United States, Huawei has given up on cracking the U.S. market. But a determination that Huawei violated U.S. sanctions on Iran could have dire implications for the company’s ability to operate in Europe as well. On Wednesday, Huawei abruptly cancelled plans to sell $600 million in Euro-denominated bonds.

For ZTE, the U.S. embargo inflicts a crippling blow. By some estimates the company depends on U.S. hardware or software for as much as 90% of its products. By its own admission, the company is now fighting for its very survival.

In the wake of the U.S. ban on sales to ZTE, commentators in China’s state-owned media have argued that China must kick its dependence on American science and technology and focus instead on developing home-grown known-how and products. This week, Xi Jinping echoed that line. In televised remarks during a visit to a technology company in the city of Wuhan, Xi declared that the time has come for China to “abandon illusions and rely on ourselves” in developing new technologies.

That’s a chilling prospect, and one it seems unlikely Trump’s economic advisers, in their visit to Beijing, will be able to forestall.

Trade and Economy

Followed by the FBI: The FBI is said to have begun their probe on whether Chinese telecoms manufacturer Huawei violated sanctions on sales to Iran, making it the third US government body after the US Treasury and the Commerce Department that has started investigations. The FBI’s criminal inquiry arose from an early prob against another Chinese tech giant ZTE. Bloomberg

“Stupid and passive”: Troubled China’s second-largest telecoms equipment maker ZTE posted a 39% increase in first quarter earnings late Friday, and did not address the US Commerce Department’s seven-year ban on sales of its gear in its earnings statement, Bloomberg reported. Despite a strong show of support from official Chinese government spokespersons and citizens commenting on Chinese social media, Quartz this week reported on a leaked document by the Chinese government allegedly chastising the company for its “stupid and passive” moves that “lack social integrity”. Nikkei Asian Review

Balenciaga boycott: Chinese netizens are urging shoppers to boycott the French luxury brand after a video circulated showing an alleged instance of racial discrimination at a Printemps department store in Paris. A bystander’s four-second video, initially posted on social app WeChat, shows security personnel forcibly subduing a Chinese man following an in-store scuffle, ostensibly over Balenciaga shoes. Balenciaga posted an apology on its Twitter page the same day, but many Chinese citizens have derided it for being vaguely worded and insincere. Sixth Tone

Politics and Policy

Significant step: China has joined in the global chorus of encouragement after the historic meeting between North and South Korean leaders on Friday. A Chinese Foreign Ministry spokesperson called the summit a significant step towards ensuring long-term peace and stability on the Korean peninsula. South China Morning Post

Ice-breaker: Chinese President Xi Jinping and Indian PM Narendra Modi’s meeting in China’s central Wuhan city yesterday and today is a sign of thawing relations between the world’s most populous countries, say analysts, and comes after a period of fraught ties following the Doklam conflict. The meeting to reset relations, at India’s request, may be part of Modi’s strategy for winning next year’s Indian elections, says NYT. New York Times

Welcome to the gun show: China and the US have intensified the frequency of live military drills conducted around the Taiwan Straits this week. China has said that the increasingly aggressive show of might by the People’s Liberation Army navy and air force is aimed at pro-independence forces in US-backed Taiwan, but the Pentagon has said that it “will not take the bait and respond” to its intimidation attempts. South China Morning Post

Heroes and martyrs: China has introduced a new regulation outlawing acts that defame of deny the achievements and spirit of the country’s national heroes and history martyrs. The latest move to protect symbols of state is part of President Xi Jinping’s growing crackdown on dissent and free speech in the name of protecting China and the ruling Communist Party from threats both within and outside the country. Wall Street Journal

In Case You Missed It

What America Must Do Now, After North Korea's Summit with South Korea TIME

#MeToo activists in China are turning to the blockchain to dodge censorship Quartz

Hong Kong’s ‘Superman’ Billionaire Bets on China’s Fossil-Free Future Bloomberg

Meituan-Dianping Invests $63.3M In Cheese Tea Chain HeyTea China Money Network

Technology and Innovation

China's #metoo moment: China’s top tech giants Baidu, Alibaba and Tencent came under media scrutiny this week after a report by US non-profit Human Rights Watch revealed the blatant sexism in Chinese job ads. The report, which analysed 50,000 job ads posted in the last five years shows that many openly preferred male employees or referred to female employees as “goddesses” and used them as baits to attract more male applicants. The three companies have since publicly refuted the allegations. Fortune

Users not owners: Chinese ride-hailing behemoth Didi Chuxing has formed the Didi Auto Alliance with 31 global and Chinese car makers to “turn car owners into car users”, Financial Times reported. Didi will tap on its database of 450m registered users and data on routes and preferences to help carmakers design vehicles that will be leased out by time or kilometre driven, rather than sold, the firm said. It also plans to roll out its first car model, the D1, in the next three to five years. Financial Times

Sequoia sues: The China arm of venture capital fund Sequoia Capital is suing the founder of Binance, the world’s largest cryptocurrency exchange for a done gone awry around the time when bitcoin hit record high values last December. Binance has allegedly violated exclusivity arrangements with Sequoia, who had been planning to invest in Binance since last August, when the former started talks with another VC firm IDG in December. Bloomberg

Real name required: LinkedIn is the latest Western firm to acquiesce to China’s increasingly restrictive cybersecurity regulations. The China unit of the Microsoft-backed social networking site began informing Chinese users that they need add their phone numbers for real-name registration and verification in order to meet local regulations. TechNode

Summaries by Debbie Yong. @debyong
debbie.yong@timeinc.com

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