Think like Chinese President Xi Jinping for a moment.
You face an American adversary insisting you change the way you run your economy. If you give in, you’ll look weak to your own people. But the American president is unpopular in his own country, and might not survive reelection in 2020. And you, the Chinese president, might be able to nudge him off the ledge. What should you do?
We’ll get a hint in late June, when President Trump and President Xi are likely to meet at a gathering of global leaders in Japan. But expectations for a breakthrough in the trade dispute between Trump and China seem increasingly unrealistic. Negotiators have stopped talking since Trump added a new layer of tariffs on Chinese imports on May 10. China has been signaling intransigence rather than conciliation. It might even be rational for Xi to call Trump’s bluff, daring him to escalate the trade war as he has threatened and risk economic damage at home just as he’s running for reelection.
In this way, China could influence the outcome of the 2020 election, without the ugly ramifications of Russia’s interference in the 2016 U.S. election. Trump, after all, picked the trade fight with China—not the other way around. Trump is right about China’s theft of foreign technology and its abuse of global trading privileges. But Trump’s use of tariffs and his go-it-alone dismissiveness of allies could turn out to be fatal errors that give China an opening to use America’s own electoral system against Trump.
The fallout so far
So far, Trump has imposed 25% tariffs on about $250 billion worth of Chinese imports—about half of everything China sends to the United States. He has threatened similar tariffs on all the other Chinese imports. That move would hit the U.S. economy harder than the tariffs already in place, because it would include finished consumer goods such as clothing, toys, electronics, furniture and appliances. Shoppers would notice price hikes overnight.
Businesses already cite Trump’s protectionist trade policy as a top concern. Business investment has flattened out in 2019, and the stock market is at the same level it was at 17 months ago, when Trump announced his first set of tariffs. American farmers are suffering from retaliatory tariffs on U.S. agricultural exports to China. And the Trump tariffs, which are taxes paid by American businesses and consumers, are costing the typical U.S. household $831 per year, according to the New York Federal Reserve.
President Xi undoubtedly knows all this. He also knows that Trump’s approval rating is a meek 42%, with Trump underwater in key electoral states such as Michigan, Ohio, Pennsylvania and Wisconsin. Polls show Trump would lose to at least 6 potential Democratic challengers if the presidential election were held today, which means there’s a solid chance China will only have to deal with Trump for another 18 months or so.
Risks in facing down Trump
Can China make it harder for Trump to win reelection? Possibly. If China refuses to agree to a trade deal, it would force Trump to show his hand on the remaining tariffs he has threatened. If Trump followed through on that threat and hit the remaining Chinese imports with tariffs, stocks would almost certainly drop, with a recession possible in 2020.
If he didn’t do it, his threat would be exposed as hollow and China’s hand would strengthen. And if Trump opted for half-measures—such as a 10% tariff on remaining imports instead of the 25% he has threatened—it would look weak and probably perpetuate the current impasse. All of these things would make it harder for Trump to claim credit for a strong economy, declare victory in his trade war with China and persuade voters to give him another term.
There would be risks for China in facing down Trump. The trade dispute is probably hurting the Chinese economy more than America’s, and Xi would have to make the case at home for bearing the pain. Trump is likely to pull every possible lever that might help him win, as his crusade against Chinese tech giant Huawei reveals. The pain for China could intensify, without much ability to hurt America back.
China could also miscalculate, and guess wrong about Trump losing in 2020. If China digs in and Trump wins reelection, they’d have to deal with a vindictive, newly empowered American adversary who might care less about the collateral damage of a trade war than he does now. So the pain for China might last through 2025. If Trump loses, China would also be betting that his successor would offer a reprieve, not necessarily a given.
The Chinese are clever, however, and President Xi is unlikely to personalize the dispute with Trump or even acknowledge a desire to see him lose. More likely is the sort of glad-handing Trump seems to relish, and friendly interactions with Xi, as the two sides “respectfully” disagree on the terms of a trade deal. That would be a hedge against Trump winning in 2020, which could compel China to agree to some concessions they’re not willing to make now.
It’s entirely possible China goes a different direction, and makes a deal with Trump before the election. But the odds of that are likely to diminish as the election draws closer and trade becomes more politicized. Xi faces no reelection, of course, so there’s no clock ticking on his side.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman