Time for a deal

At the 17th annual Boao Forum for Asia just concluded on China's southeastern resort island of Hainan, Chinese President Xi Jinping declared that "Cold War mentality and zero-sum game thinking" were "outdated."

Even if his criticism was indirect, it was the first time he had expressed himself in public on US President Donald Trump's threatened tariffs against China. In a veiled comment evidently directed at Washington, Xi said that there was no place for isolationism in a world that wanted peace and progress. He warned that those who pursued this path would be left on the "garbage heap of history”. 

Willingness to compromise

Xi also showed a willingness to compromise, saying that China did not "seek a trade surplus" and would open the market further to imports. He announced that the current 25 percent tariff on auto imports would be cut this year. So it could well be that a compromise can be found before the US' tariffs even come into effect.

Trump also struck a milder tone this week. He said that China and the US would maintain their "good relationship” despite the dispute and tweeted that he and Xi Jinping were "good friends”. He also said that he did not "blame China” but those who had run the US in the past, implying that previous presidents were responsible for what he calls a "stupid” trade deal. He would like to find a new deal without angering China too much as he knows that he has no means of enforcing his will.

There might be some wrestling before compromise is found. By saying that the "zero-sum era” was over, Xi Jinping was clearly indicating that the US can no longer set the rules as if it were the only global power. He told the more than 2,000 delegates at the Boao Forum that China had found its own path to modernization.

Trump and Xi both know that their countries are mutually dependent. They know that they have to be conciliatory. Though Trump said that Chinese threats to raise tariffs on US agricultural products to hurt him politically with rural voters would "backfire," he knows that China is not afraid of doing this.

Agreement still possible

Since the tariffs can only come into force at the end of May at the earliest, there is still time for negotiation and for the situation to deescalate. Trump's top economic advisor Larry Kudlow has already signaled that there will be "negotiations at some point." He also said that "there may be tariffs before, maybe not. We shouldn't panic." 

All tools are being looked into in the current debate between these two global powers. Beijing has examined the potential impact of depreciating its yuan currency as an instrument of pressure. This would make US products in China more expensive without punitive tariffs and Chinese exports cheaper.

In his speech in Hainan, Xi also promised harsher punishment for violators of intellectual property rights, as well as a more balanced trade and better investment conditions for foreign companies in China. He thus set the agenda for the negotiations.

The first phase of the power struggle is over. Both sides know that they will have the upper hand if they sound confident of victory when they make their threats. Now, it's a question of sitting down and finding a mutual solution together.

Frank Sieren has lived in Beijing for over 20 years.

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