The Wireless Great Power Rivalry

Financial markets got a short-lived sugar high when Presidents Trump and Xi announced a tariff ceasefire in Argentina on December 1, after what Trump dubbed “an amazing and productive meeting with unlimited possibilities.” But Trump’s optimism cannot hide the fact that the United States is plunging into a prolonged great power rivalry with China. The arrest in Canada, at U.S. request, of a top executive of the Chinese telecoms giant Huawei is only the latest evidence. Both sides may try to disentangle that dispute, which seems partially based on an Iranian sanctions violation, from the trade negotiations, which have a looming March 1 deadline. Yet on balance, the United States is clearly veering toward great power competition rather than large trade deals with China. This rivalry is the new structural reality of the relationship. Markets, businesses, and U.S. allies alike should take note.

There is a creative tension at the heart of the Trump Administration’s approach to China. Trump wants to do a big trade deal that would entice China to buy more American goods, especially agricultural goods, and allow more market access for American companies in China. This fits with Trump’s instinct that trade deficits are inherently bad, and the U.S.-China trade deficit especially egregious. China’s monthly trade surplus with the United States did widen to $35.55 billion in November, a record high. Reducing that deficit is certainly possible, if the Chinese ramped up their buying of American goods and allowed U.S. companies better access. If the metric of negotiations is the size of the trade deficit, the contours of a deal are already apparent. That outcome would see the United States and China trading more, but with a smaller bilateral imbalance. It would be a natural extension of longstanding U.S. engagement and trade policy with China.