Next China: Time to Maneuver

(Bloomberg) -- Presidents Donald Trump and Xi Jinping last met face-to-face half a year ago in Argentina. They emerged with a trade-war truce, but one with a 90-day expiration date by when the two sides had to reach a deal.

Deadlines aren’t always constructive. That might be especially pronounced for a predicament as complex as the one Washington and Beijing now find themselves in.

A confrontation that began over America’s trade deficit, access to Chinese markets and the protection of intellectual property has since expanded to include technology and national security. Some have even described it as a “clash of civilizations.”

And as Trump and Xi prepare to meet this weekend in Japan, it again looks likely that a truce will be struck. The U.S. would hold back on its threat to impose tariffs on an additional $300 billion of Chinese goods and the two presidents would restart efforts to iron out a deal.

There may not be a deadline this time. Some of Trump’s advisers are said to be pushing for him to avoid one. Looking back, even the 90-day countdown set in Argentina last December was then eventually extended.

It’s hard to imagine this trade war being settled in three months or less, given the issues that have kept them apart. As hawkish sentiment has grown on both sides, it’s left Washington and Beijing with less room to maneuver.

Plan B

President Trump has said that if he doesn’t like what he hears in the summit with Xi, that he will raise tariffs on the remaining $300 billion of Chinese imports into the U.S. The Chinese side has likewise expressed a readiness to dig in for a prolonged confrontation. To be sure, the gulf that divides Washington and Beijing at the moment is substantial.

Dollar Figure

The economic implications of a protracted trade war are painful. There are already signs that America’s tariffs on Chinese goods are reshaping global trade and prompting companies to hold back on investments. Overall, the trade war could cost the global economy $1.2 trillion, according to calculations by Bloomberg Economics. And as much as the U.S. and China will suffer the brunt of the fallout, other countries aren't immune.

Tech War

Just as impactful is the confrontation over technology. In the latest salvo, the U.S. took steps to forestall China's advances in super-computing by adding five Chinese companies to a blacklist that bars them from buying American technology. Already on that list is Huawei, though some American suppliers may have found a loophole that allows them to continue shipping products to the Chinese tech giant. That said, the pressure on Huawei doesn’t appear likely to subside as more U.S. lawmakers express concerns that its gear could facilitate spying. Another revelation from this week was that some Huawei employees worked with Chinese military personal on research projects. 

Deal Maker

Not every company is pulling back. Take for example Fosun, led by billionaire Guo Guangchang. The Shanghai-based conglomerate has been keeping a low profile for the past few years after China began reining in a spree of overseas acquisitions by Chinese companies. A flurry of recent activity, however, suggests that might be changing. Fosun has been in talks to buy a majority stake in a Russian gold miner and also mulling a joint bid for Bayer AG's animal-health business.

Healthy Living

And finally, growing wealth isn't just changing how Chinese people live; it's changing how they die. Chronic illnesses stemming from smoking, high salt intake or pollution are now a more likely cause of death than infectious diseases. That means Beijing's healthcare challenges are increasingly resembling those of developed economies. In this unfortunately morbid facet, the U.S. and China are becoming more alike. 

To contact the editor responsible for this story: Jeff Black at jblack25@bloomberg.net

©2019 Bloomberg L.P.

With assistance from Bloomberg