◎ Messaging from China and the U.S. suggest that both sides want to make the deal happen.
After the announcement of the Sino-U.S. “phase one” trade deal on Dec. 13, the United States and the People’s Republic of China have both issued messaging which suggests that they are serious about reaching an interim trade agreement.
America: Good cop, bad cop
Since Dec. 13, the Trump administration has been publicly selling “phase one” as a done deal while letting the Chinese Communist Party regime know that it is still being put on notice. The administration also acknowledged that PRC domestic politics would decide whether or not the trade deal can be concluded.
Key messaging include (arranged chronologically):
Dec. 15
- U.S. Trade Representative Robert Lighthizer told CBS’s “Face the Nation” that “Ultimately, whether this whole agreement works is going to be determined by who’s making the decisions in China, not in the United States. If the hardliners are making the decisions, we’re going to get one outcome. If the reformers are making the decisions, which is what we hope, then we’re going to get another outcome.”
Dec. 16
- U.S. National Economic Council Director Larry Kudlow told reporters at the White House, “Make no mistake about it: the deal is done, the deal is completed. The deal is absolutely completed.”
Dec. 19
- U.S. Treasury Secretary Steven Mnuchin told CNBC that trade negotiators from both sides will sign the “phase one” deal in early January and that he is “very confident” that the signing will be on schedule. He also said that the trade deal was undergoing a “technical, legal scrub” and would be released at “the beginning of January.”
- Speaking to reporters at the White House, Mnuchin said, “We are going through a technical issue now where again the agreement is translated. I don’t expect there’s any changes.”
- The Washington Times published an in-depth interview with U.S. Secretary of State Mike Pompeo with a focus on China. The newspaper reported Pompeo as saying that the Chinese people “want to live in a free society and do not support the ruling Communist Party.” He also said that “it’s important that the United States recognize the greatness of the people of China and their capacity for desiring freedom and wanting nothing more than to live their lives, and the Chinese Communist Party that has a very different mission set.” Further, Pompeo told the Washington Times that he has “no immediate plans to step down and run for the open Senate seat” in Kansas next year; “I’m going to stay here as long as President Trump will have me here and that’s my intention,” he said.
- The Washington Times reported Pompeo as saying that Trump’s “objective in applying tariffs and tough trade measures toward China has been to change Beijing’s behavior and induce fairer practices.” Pompeo added that “decoupling won’t take place” if there are “lower tariffs, lower nontariff barriers, increased trade and greater transparency” as the trade talks progress. “In the end, the Chinese Communist Party will get a vote in this, and they’ve got to decide if they want to compete or if they want to be protectionist,” he said.
- Pompeo also brought up the CCP’s persecution of Uyghur Muslims in Xinjiang, the subject of arms control with China and Russia, and America’s efforts to raise global awareness about the CCP threat in his interview with the Washington Times.
- The Washington Times reported that PRC foreign minister Wang Yi later accused the U.S. of “slander” against the Chinese system, and interpreted Wang’s remark as “an indirect reference to Mr. Pompeo’s criticism.”
Dec. 20
- President Donald Trump tweeted: “Had a very good talk with President Xi of China concerning our giant Trade Deal. China has already started large scale purchases of agricultural product & more. Formal signing being arranged. Also talked about North Korea, where we are working with China, & Hong Kong (progress!).”
- In an interview with Fox Business, Michael Pillsbury, a top external China advisor to the Trump administration, said that he expects the PRC to “test the limits” of the trade deal’s enforcement mechanism within the first two or three months after the agreement is signed. Pillsbury added that the U.S. will then punish China with a “really large” fine or by reimposing tariffs “in that sector,” following which “they will give orders inside the Communist Party, stop this technology theft, or at least cut it back.”
Dec. 21
- Speaking at a Turning Point USA event in Florida, President Trump said, “We just achieved a breakthrough on the trade deal and we will be signing it very shortly.”
PRC: Scrubbing concessions
The PRC announcement of the “phase one” trade deal on Dec. 13 was light and vague on details, and state mouthpiece Xinhua was the only PRC media outlet to report on it. All subsequent reporting and commentary on the trade deal did not contain information outside the initial Xinhua report of the announcement.
Then on Dec. 20, Xinhua, People’s Daily, and other key mainland media outlets shared a commentary piece that was posted to WeChat account “tian tian yu wei” (甜甜餘味) titled “From Lighthizer to CNN, Intriguing Changes in Commentary About China.” From our observation, the “tian tian yu wei” account became active in the middle of 2018 when difficulties arose in the Sino-U.S. trade talks. We believe that the “tian tian yu wei” account performs a similar function to the PRC Economic Daily-ran “Taoran Notes,” i.e. a government-operated social media handle posing as “private” self-media to air opinions that state media find inconvenient to make under their own brand.
The “tian tian yu wei” article made two main points. First, the article noted that “public opinion” in the U.S. and China believe that each side would be “disadvantaged” in signing the “phase one” deal, and that President Trump has been criticized by Senate Minority leader Chuck Schumer for having “sold out” American interests. Second, the article claims that Ambassador Lighthizer’s remarks after the announcement of the trade deal, in particular his comment about the integration of “two very different systems to the benefit” of the U.S. and China, signals a gradual shift in the Sino-U.S. trade relationship from confrontation to reconciliation.
In concluding, the “tian tian yu wei” article notes that while the Sino-U.S. “phase one” trade deal might not immediately resolve the trade war, it will at least prevent further escalation. According to the article, the “phase one” deal will “provide a time and space buffer” and “allows both sides to calm down and consider” that “being accommodating and not forcibly changing each side’s differences is the cognitive premise for a mature and healthy relationship.”
Our take:
1. It is clear from the messaging released by the PRC and the U.S. that both sides want to make the deal happen.
The Trump administration has been presenting the “phase one” deal as fait accompli. The administration has also signaled (via Michael Pillsbury) that it can tolerate some lapses on the Chinese side and that those lapses will not necessarily mean the scuttering of the deal—provided the Chinese side reforms its behavior after being punished for early infractions.
Meanwhile, the PRC’s general lack of commentary about the “phase one” deal and relative lack of criticism about tough U.S. remarks on the CCP regime (Pompeo) indicate that the Xi Jinping leadership does not want to unsettle the increasingly tense Sino-U.S. relationship for the time being. Also, “tian tian yu wei” article appears like an attempt to shut down talk that Xi “caved” or “sold out” the PRC by signing the “phase one” deal; we previously analyzed that publicly available information on the trade deal thus far indicates that the PRC will be making big concessions to the U.S. (at least on paper) if it signs the interim trade agreement.
2. We wrote earlier that “the CCP factional struggle is Xi’s greatest obstacle to signing and implementing the ‘phase one’ trade deal.” Our view remains unchanged; if anything, Amb. Lighthizer’s remark about the deal being “determined by who’s making the decisions in China, not in the United States” affirms our early analysis.
If the various CCP factions prioritize factional interests over Party interests, then recent U.S. pressure could break the fragile stalemate in the CCP elite and prevent the Xi leadership from concluding the “phase one” trade deal in January, if at all. Indeed, Pompeo’s interview with the Washington Times and Pillsbury’s Dec. 20 interview with Fox Business are particularly incendiary from the CCP’s perspective; the fact that the CCP regime has not strongly condemned Pompeo, Pillsbury, or the U.S. suggest that Xi Jinping and the CCP elite are putting the Party’s survival first, at least for the moment.
Another factor that could affect the stalemate in the CCP factional struggle is the translation of the “phase one” deal into Chinese. After the PRC rejected a 150-page draft trade agreement in May, several news outlets reported that CCP leaders reneged on the deal after reviewing the full Chinese-language translation of the draft agreement.
3. China and the U.S. are currently waging a “new cold war.” Given the Sino-U.S. rivalry, both President Trump and Xi Jinping are swimming against the currents by trying to reach a “phase one” deal and continuing with trade negotiations.
We believe that both Xi and Trump could “pay” a political price in the event that the “phase one” deal is sealed. Trump’s allies and “China hawks” like Secretary Pompeo could, in the worst-case scenario, end up leaving the Trump administration using a variety of reasons. Likewise, Xi’s allies, and particularly chief trade negotiator Liu He, could subsequently make convenient excuses to step aside (in the best-case scenario), or find themselves being investigated and removed from office (in the worst-case scenario).
