U.S. President Donald Trump, left, and Xi Jinping, China’s president, shake hands during a news conference at the Great Hall of the People in Beijing, China. (Photographer: Qilai Shen/Bloomberg)

End of Trump-Xi ‘Friendship’ May Accelerate Great Power Rivalry

(Bloomberg) -- Until yesterday, President Donald Trump’s much-touted friendship with his Chinese counterpart was the only bright spot in a rapidly deteriorating relationship. Now, even that has disappeared.

After hailing his personal bond with Xi Jinping over the 18 months since they first met, Trump told reporters that their friendship might be over. Speaking at a press conference after the UN General Assembly in New York, he also claimed that he had evidence of Chinese meddling in the U.S. midterm elections and warned countries to “resist socialism.”

Behind the accusations, Chinese officials see a combination of short-term electoral posturing and longer-term designs to halt China’s rise. It’s Trump’s election strategy to shift the focus away and stir up antagonism toward China, according to one Chinese official.

Short of some compromise or change in tone from Trump or Xi, U.S.-China relations seem poised for a precipitous decline. Just this week, as Trump’s domestic troubles mounted at home, the administration levied unprecedented penalties on a Chinese military procurement agency, while Beijing refused entry to a U.S. warship to Hong Kong next month. The fresh tensions come on top of strains on virtually every front during the Trump presidency, from trade to cyber-security and geopolitical flashpoints like Taiwan and the South China Sea.

“Trump’s UN speech a few days ago clearly signaled the formal launch of the values-based Cold War against China,” said Chen Zhiwu, an economics professor at the University of Hong Kong and a former adviser to China’s cabinet. “While President Trump did not mention China by name when attacking socialism and communism, everyone knew who the elephant in the room was,” he said.

The trade war, said Chen, “is not Trump’s end goal, but a means to a larger strategic end.”

Unlikely Affair

Perhaps none of this should be surprising. The Trump-Xi “friendship” was an unlikely affair from the outset. Trump entered office last year after spending much of his presidential campaign blasting China for stealing American jobs and threatening to use the One-China policy regarding Taiwan as a bargaining chip to secure better trade terms. The two established an unlikely rapport after meeting at Mar-a-Lago in April last year although little had changed on the substance of Trump’s criticisms.

Nor is Trump alone in driving the deterioration in relations: Xi’s assertive self-confidence on the international stage emboldened China’s critics. At a party meeting last fall, Xi boasted China was “standing tall and firm in the East of the world” and openly touted the success of China’s island-building in the South China Sea. He has pursued a more ambitious and open set of industrial policy goals than his predecessors, known as “Made in China 2025,” and taken drastic steps to modernize the military.

These acts, among others, led Pentagon officials to label China a strategic competitor. China’s trade policies and Xi’s crackdown on domestic opponents have also led to pressure from lawmakers, industry groups and NGOs to be even tougher on China. In a recent case involving ZTE, Trump found himself on the back foot as Congress pressured him not to make a deal with the company, while lawmakers recently called on the administration to sanction Chinese officials for the government’s crackdown in the far western region of Xinjiang.

FBI Arrest

Both countries are already taking measures to insulate themselves from the other side. China’s government has forbidden state media from referencing its flagship talent recruitment program after a participant was arrested by the Federal Bureau of Investigation last month. China is also drawing up plans to outlaw foreign TV shows in prime time slots. The former chief executive of Google, Eric Schmidt, recently said the internet is set to “split in two” within ten years, with a U.S.-led version and another led by China.

The prospect of open and long-term competition between the U.S. and China is already leading to realignments in global politics and markets. China’s long-term rival Japan has found itself confronted with smiles and good wishes from Chinese leaders as they seek to avoid isolation in Asia, while the European Union and China signed their first joint statement in three years at a summit in July. Mexican buyers have swept up U.S. soybeans at unexpected bargain prices as China shuns them.

To be sure, there might still be ways to avoid further escalation. A lot will depend on how Trump and Xi’s face-to-face talks go when they meet at the Group of 20 summit in late November. Although Trump’s recent comments cast doubt on the chances of success, he has a penchant for changing his mind and his first meeting with Xi went well despite predicting that it would be difficult -- and his decision to launch an air strike during dinner.

One nearer term sign will be how Trump responds to Beijing’s latest round of retaliatory tariffs. “In the past two days, the U.S. has attacked China for political meddling but hasn’t announced the start of the next tariff process even though the president said it would be triggered by the Chinese action,” said Derek Scissors, chief economist at the China Beige Book. “Some other shoe -- stepping toward conciliation or conflict -- is waiting to drop.”

©2018 Bloomberg L.P.