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U.S. Should Play an Easy Huawei Bargaining Chip With China

David Fickling
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U.S. Should Play an Easy Huawei Bargaining Chip With China

(Bloomberg Opinion) -- What the U.S. and China need right now are bargaining chips – and the willingness to play them.

News that the White House is holding off making a decision on licenses to allow U.S. companies to restart business with Huawei Technologies Co. might sound like an escalation in the trade war. In truth, it could be a rare shred of good news if both sides approach the next step with a concession in mind.

Shares of Huawei suppliers slumped after Bloomberg News reported that Commerce Secretary Wilbur Ross had postponed the decision since Beijing halted purchases of U.S. farm products. And yet, by the end of the day, information technology stocks recovered on U.S. exchanges, driving the S&P 500 index to its strongest daily gain in two months.

What’s going on?

One explanation is that what the U.S. needs right now is not export opportunities for technology companies, but pieces to play in the game of easing international tensions. The prospect of a fundamental trade deal addressing Washington’s deep misgivings about China’s economic model is remote – but as we’ve been arguing for more than a year, that was always a pipe dream. A more limited agreement that gives both sides something to crow about while making little real difference to the status quo was always more likely, and remains so.

That’s where Huawei comes in. The most obvious way to lower the rapidly increasing temperature would be to strike a deal in which the U.S. offered lenience on Huawei and China put in some firm commitments for agricultural purchases. In each case, the government would be presenting as a concession something that it’s reasonably happy to offer anyway.

For the U.S., the resumption of sales to Huawei would make life easier for an industry that accounted for nearly $13 billion of exports to China last year, putting it behind only aircraft and machinery as the biggest contributor to shrinking the U.S. trade deficit.

Washington has larger strategic issues with Huawei as a potential tool for tilting control of the world’s communications networks closer to Beijing. But,  as we saw with ZTE Corp., President Donald Trump has been happy to trade that advantage as long as the Chinese giants are kept out of U.S. networks. A future in which Huawei’s products are quarantined from the U.S. but its business isn’t crippled outright would closely match what happened with ZTE.

For China, the announcement of a ban on U.S. agriculture purchases by state-owned companies is also self-defeating. While China’s imports of U.S. agricultural goods are rather small, the potential trade is substantial – especially in protein, where the country risks running short thanks to its cull of pigs affected by African swine fever and its embargo on American soybeans. Beijing tends to be wary about becoming too dependent on any single trading partner for essential commodities, so a future in which the world’s second-biggest agricultural exporter is closed off from farm trade doesn’t look sustainable.

To be sure, each bargaining chip is primarily symbolic rather than something likely to alter the deeper U.S.-China relationship. But such an integrative bargain, where both sides can present the result as a win at home, is far more likely to succeed than the more antagonistic distributive negotiations that have prevailed so far, in which each has tried to overmaster the other. As a result, it makes little sense for Ross to give away his Huawei chip without getting something in return.

Symbols won’t solve the fundamental differences between Washington and Beijing, but failure to offer them has left the sides further apart than ever, with the world teetering on the edge of a recession and currency war. An exchange of peace offerings could be precisely what’s needed to break the downward spiral and at least stabilize relations at their current miserable levels.

To contact the author of this story: David Fickling at dfickling@bloomberg.net

To contact the editor responsible for this story: Patrick McDowell at pmcdowell10@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

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