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Could Trump’s China trade policy be a template for Biden?

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Greetings from Singapore, where it’s a relief to be able to get in a taxi again without the driver asking some variant of the question, “Who do you think is going to win?”

In this part of the world, the conventional wisdom is that once installed in the White House, Joe Biden will give everyone a breather with a calmer and more predictable approach to foreign affairs, even if in substance he will be about as tough on China as President Donald Trump was.

But before Trump exits the political stage, pursued by an agent from the Internal Revenue Service, it is worth asking whether his approach to China on trade issues — as ad hoc and chaotic as it often appeared — might not, in fact, be a useful template as a Biden administration tries to repair relations on a range of other bilateral fronts.

It is hard to imagine now, but it was only last year that trade was arguably the most difficult issue dividing the two geopolitical rivals. Yet, somehow, a veteran Chinese state planner — Vice-Premier Liu He — and a career trade lawyer determined to dismantle many of the defining elements of Chinese “state capitalism” — US trade representative Robert Lighthizer — managed to forge a productive relationship and turn trade into what is now arguably the most stable plank in the two countries’ otherwise extremely fraught relationship.

This is the subject of our main piece, while our Policy watch looks at how Joe Biden’s US election victory and Irish roots could make a difference to the heated realpolitik of Brexit talks. Chart of the day, meanwhile, highlights how listed European companies that have more women at senior levels have benefited from strong share-price performance, according to analysis.

Don’t forget to click here if you’d like to receive Trade Secrets every Monday to Thursday. And we want to hear from you. Send any thoughts to trade.secrets@ft.com or email me at tom.mitchell@ft.com

Liu and Trump sign ‘phase one’ of the US-China trade agreement at the White House in January this year
Liu and Trump sign ‘phase one’ of the US-China trade agreement at the White House in January this year © REUTERS

Respect and trust paved the way to a deal

When confronted by a good cop and a bad cop, one usually does not establish a rapport with the bad cop.

That is precisely what Liu did as he steered China-US trade negotiations from the brink of a total breakdown in May 2019 to the conclusion of a “phase one” agreement in January. The vice-premier, also President Xi Jinping’s principal economic adviser, was supposed to bond with Steven Mnuchin, Trump’s Treasury secretary and conduit to Wall Street, where he once worked for Goldman Sachs.

Senior Chinese officials have a long history dealing with Wall Street executives, who became their favourite interlocutors and back channels to Washington power brokers. They have much less experience dealing with the likes of Lighthizer, an Ohio native who predicted China’s 2001 entry into the World Trade Organization would be disastrous for America’s industrial heartlands.

Over the course of almost two years of negotiations, neither man could get what he really wanted: cancellation of punitive US tariffs on Chinese exports for Liu, real reform of the financial and industrial subsidies that buttress China’s state companies for Lighthizer. The deal they eventually forged focused instead on increased Chinese purchases of US exports, especially agricultural and energy commodities, and more openings for foreign players in China’s financial sector.

“Of course, they both batted for their own side, but like all good pragmatists they also tried hard to give the other one something when they could,” one person close to the negotiations says. “Liu He and Lighthizer respect each other, trust each other and believe that the other person is trying as hard as he can. And if they can’t deliver, they’ll be candid with each other about what the reason is.”

Implementing the “phase one” agreement was going to be difficult in the best of circumstances, let alone in the midst of a global pandemic that erupted out of central China the same week that the trade deal was signed, sinking Trump’s surging economy and ultimately costing him the White House. Yet according to people close to both men, Liu and Lighthizer both realised throughout this difficult year that the best way to move forward to negotiations for a “phase two” agreement was to implement the phase one agreement as best they could.

Even if the pandemic does magically subside as Trump repeatedly promised it would, China will still struggle to meet its two-year purchase commitments. Indeed, even counting its progress towards those commitments is not easy.

Officials in Washington naturally look at US customs records capturing China-bound shipments of various commodities, tot up the shortfall and shake their heads. Chinese officials counter that it is not easy to track orders from thousands of companies — both state-owned and private-sector ones that they do not necessarily have much insight into — which have been placed but not yet cleared US and Chinese customs. Then there are goods shipped via third countries. In this regard, “keeping score” is a lot more difficult than most people appreciate.

It remains to be seen whether Biden will want to affirm Trump’s phase one trade deal with Xi and pursue a phase two agreement after he assumes office in January.

But whoever he appoints as his trade representative, she or he could do worse than try Lighthizer’s approach. The same applies to other Biden representatives tasked with repairing everything from China-US technology disputes to communication issues between the two countries’ militaries. As the China Daily newspaper noted optimistically in the wake of Biden’s victory, trade is “one of the last threads linking the two sides”.

Stroke of luck for China

During the course of this year’s bitter US presidential campaign, Trump liked to say that China was rooting for Biden.

That assertion was debatable. In one important respect related to trade, a Biden presidency will be about as welcome a prospect for China as America’s entry into the second world war was for Germany.

Japan’s attack on Pearl Harbor gave rise to a transatlantic alliance powerful enough to defeat both the Nazis in Europe and the Japanese imperial army in the Pacific. Something similar may be about to happen with regards to global trade.

China’s biggest stroke of luck in its trade war with the US was Trump’s utter lack of interest in forging any sort of united front with European and Asian allies against Beijing. Instead, the US president relished picking simultaneous trade fights with China, South Korea, Japan, Canada, Mexico and the EU.

Biden has made it clear that he will try a different approach, by seeking a broader alliance with European, North American and Asian allies as he confronts China on trade issues. It is a prospect that may well have Xi hoping Trump will in fact be able to engineer a reversal of this month’s election outcome either when electoral college electors formally choose America’s next president on December 14, or during ratification of the result by Congress on January 6.

Charted waters

Women used to be largely absent from the higher echelons of the corporate sector. As recently as 2005, fewer than 10 per cent of board members at Europe’s top 600 listed companies were women. Now that figure is more than 30 per cent. But has this made a difference? Listed European companies that have more women at senior levels have benefited from strong share-price performance, Goldman Sachs has found by crunching data for the Stoxx 600 companies since the 2008 financial crisis.

Companies with more women on boards perform better. Chart showing performance of first quartile vs last quartile in Stoxx Europe 600 index companies based on female representation within sector, rebalancing each year (%)

Policy watch

Ireland forecast that Biden’s election victory would prompt Downing Street to “pause for thought” in Brexit talks as Micheál Martin, the Irish prime minister, called the incoming US president a “stalwart friend and supporter” of the country.

Biden is but the latest in a long line of American leaders with old family links to Ireland, a legacy of the country’s long history of emigration, but Martin said he would be the “most Irish” president since John F Kennedy, more than half a century ago. 

Joe Blewitt, a cousin of Joe Biden, and his wife Deirdre celebrate the US election results on Saturday in front of a mural of the president-elect at his ancestral home in Ballina, County Mayo, Ireland
Joe Blewitt, a cousin of Joe Biden, and his wife Deirdre celebrate the US election results on Saturday in front of a mural of the president-elect at his ancestral home in Ballina, County Mayo, Ireland © AP

It is in the heated realpolitik of Brexit that Dublin believes the president-elect may make a difference, as the endgame approaches in fraught EU-UK trade talks. Biden’s opposition to Brexit stands in contrast to Trump’s support, and he has described Boris Johnson, Britain’s prime minister, as “a physical and emotional clone” of the incumbent in the White House. 

Johnson must now deal with a president-elect who warned during the election campaign that Britain could forget any prospect of a US-UK trade deal if it made Northern Ireland “a casualty” of Brexit

Don’t miss

  • Brussels will hit US products, ranging from sugarcane molasses to spirits, with punitive tariffs in the transatlantic dispute over aircraft subsidies, even as it looks forward to better relations with the US following Biden’s victory. Valdis Dombrovskis, the EU’s trade commissioner, said Brussels would use retaliation rights awarded last month by the World Trade Organization to target US imports into Europe with additional duties. The measures take effect on Tuesday. 
    Read more

  • One in seven Spanish workers are in businesses at risk of collapse, according to research by the European Central Bank, excluding those who work for financial companies. This is the highest rate of all large eurozone economies, and comes despite the country’s national furlough scheme.
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  • Weaker pork prices helped push China’s consumer price inflation to its lowest level in 11 years, adding to concerns over the strength of household spending during the country’s recovery from the coronavirus pandemic. The consumer price index rose 0.5 per cent year on year in October, official data show, lower than economists’ expectations of 0.8 per cent. That compares with a 1.7 per cent rise in September and 2.4 per cent in August.
    Read more

Tokyo talk

The best trade stories from Nikkei Asia

  • Hong Kong manufacturers are bracing for an uncertain future as their exports are labelled “Made in China” from Tuesday, according to a US government order in response to the city’s national security law. 
    Read more

  • To get US-China relations back on track, Biden should recalibrate the narrative to reflect that China’s technological rise had more to do with its own strengths and the open economy encouraged by the US, writes Nina Xiang.
    Read more

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Emerging Markets

Ukraine accuses Russia of blocking talks to ease military tensions

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Kyiv has accused Moscow of blocking attempts to begin talks aimed at calming military tensions sparked by the deployment of tens of thousands of Russian troops close to the Ukrainian border.

Ukraine’s president Volodymyr Zelensky has not received a response to his request for a telephone call with Russia’s Vladimir Putin, his spokesperson said, amid concerns from the US and other European powers that an escalation in military deployments could result in full-blown conflict.

More than 14,000 people have been killed in eastern Ukraine since 2014 in fighting between Russian-backed separatists and Ukraine’s army for control of Donbas, a region in the east of the country bordering Russia. The fighting first erupted after Moscow’s annexation of Ukraine’s Crimea peninsula.

“The request has been forwarded from the office of the president of Ukraine to the office of Vladimir Putin to have a conversation, a telephone talk. And we have not received an answer yet,” Zelensky’s spokesperson Iuliia Mendel said on Monday.

“The office of the president of Ukraine hopes that it doesn’t mean that Vladimir Putin refuses to have a dialogue with Ukraine,” she said, adding that the request was made on March 26.

Separately, Ukraine’s foreign ministry said on Monday that Russia had refused to engage “in consultations aimed at reducing security tensions” and boycotted an OSCE meeting on Saturday where the troop build-up was scheduled to be discussed.

Volodymyr Zelensky
Ukraine president Volodymyr Zelensky (above) made a request for a telephone call with Russian counterpart Vladimir Putin on March 26 © Gints Ivuskans/AFP/Getty Images

Putin’s spokesperson responded by saying that he was not aware of any recent requests for talks from Zelensky.

“In recent days, I have not seen any requests. I am not aware that there have been any requests in recent days,” Dmitry Peskov told reporters.

“In terms of defusing tensions and preventing a potential war, Vladimir Putin always has something to say,” he added, when asked whether Putin had anything to say to his Ukrainian counterpart. “We hope that political wisdom will prevail in Kyiv, and the matter will not take a serious turn.”

Mendel said Russia had stationed more than 40,000 troops on the eastern border area and sent another 9,000 to Crimea, in addition to the 33,000 troops already there.

That build-up, supplemented by tanks and other armed vehicles, has led to accusations that Moscow plans some form of military intervention. The Kremlin said it is permitted to station its soldiers wherever it likes, and that they are no threat to any other country.

Both Ukraine and Russian-backed separatists in Donbas accused the other side of sporadic violations of a ceasefire agreement over the weekend.

Kyiv says 28 of its troops have been killed so far this year, more than half the number who died over the whole of 2020.

Russian officials have dramatically increased their belligerent rhetoric towards Ukraine in recent weeks. Putin has warned that the situation could provoke a repeat of the 1995 Srebrenica massacre in Bosnia, while his deputy chief of staff said any escalation by Kyiv would be “the beginning of the end” for the country and provoke from Russia “not a shot in the leg, but in the face”.

Ukraine has responded by calling on Nato to speed up its membership application, while US president Joe Biden has pledged his support to the country.

In addition to the US and European powers, concerns over the military build-up have drawn in regional power Turkey, which lies across the Black Sea from Crimea. The Nato member has deepened ties with Russia in recent years but opposes Russia’s annexation of the peninsula and in 2019 sold military drones to Kyiv.

Zelensky on Saturday held talks with Turkish president Recep Tayyip Erdogan in Istanbul, who called for dialogue and for a peaceful resolution
in line with Ukraine’s “territorial integrity”. Those talks came a day after a telephone call between Erdogan and Putin, in which the Russian leader accused Ukraine of “dangerous provocative actions”.

Additional reporting by Ayla Jean Yackley in Ankara



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Technology will save emerging markets from sluggish growth

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The writer, Morgan Stanley Investment Management’s chief global strategist, is author of ‘The Ten Rules of Successful Nations’

Emerging economies struggled to grow through the 2010s and pessimism shrouds them now. People wonder how they will pay debts rung up during the pandemic and how they can grow rapidly as they did in the past — by exporting their way to prosperity — in an era of deglobalisation.

The freshest of many answers to this riddle is the fast-spreading digital revolution. Emerging nations are adopting cutting-edge technology at a lower and lower cost, which is allowing them to fuel domestic demand and overcome traditional obstacles to growth. Over the past decade, the number of smartphone owners has skyrocketed from 150m to 4bn worldwide. More than half the world’s population now carry the power of a supercomputer in their pockets.

The world’s largest emerging market has already demonstrated the transformative effects of digital technology. As China’s old rustbelt industries slowed sharply over the past decade, and ran up debts that threatened to explode in crisis only a few years ago, the booming tech sector saved the economy.

Now, often by adopting rather than innovating, China’s emerging market peers are getting a push from the same digital engines. Since 2014, more than 10,000 tech firms have been launched in emerging markets — nearly half of them outside China. From Bangladesh to Egypt, it is easy to find entrepreneurs who worked for Google, Facebook or other US giants before coming home to start their own companies.

As well as the so-called Amazon of China, there are Amazons of Russia, Poland, Latin America and south-east Asia. Local firms dominate the market for search in Russia, ride-hailing in Indonesia and digital payments in Kenya. 

By one key metric, the digital revolution is already as advanced in emerging economies as developed ones. Among the top 30 nations by revenue from digital services as a share of gross domestic product, 16 are in the emerging world. Indonesia, for example, is further advanced by this measure than France or Canada. And since 2017, digital revenue has been growing in emerging countries at an average annual pace of 26 per cent, compared with 11 per cent in the developed ones.

How can it be that poorer nations are adopting common digital technologies faster than the rich? One explanation is habit and its absence. In societies saturated with bricks-and-mortar stores and services, customers are often comfortable with and slow to abandon the providers they have. In countries where people have difficulty even finding a bank or a doctor, they will jump at the first digital option that comes along. 

Outsiders have a hard time grasping the impact digital services can have on underserved populations. Nations lacking in schools, hospitals and banks can quickly if not completely redress these gaps by establishing online services. Though only 5 per cent of Kenyans carry credit cards, more than 70 per cent have access to digital banking. 

The “digital divide” is narrowing in many places. Most of the big countries where internet bandwidth and mobile broadband subscriptions are growing fastest are in the emerging world. Last decade, the number of internet users doubled in the G20 nations, but the biggest gains came in emerging nations such as Brazil and India.

The digital impact on productivity, the key to sustained economic growth, is visible on the ground. Many governments are moving services online to make them more transparent and less vulnerable to corruption, perhaps the most feared obstacle to doing business in the emerging world.

Since 2010, the cost of starting a business has held steady in developed countries while falling sharply in emerging countries, from 66 per cent to just 27 per cent of the average annual income. Entrepreneurs can now launch businesses affordably, organising much of what they need on a smartphone. Lagos and Nairobi are rising as local fintech hubs, where leading executives vow to raise Africa’s “digital GDP” by widening access to internet financing.

It’s early days, too. As economist Carlota Perez has shown, tech revolutions last a long time. Innovations like the car and the steam engine were still transforming economies half a century later. Now, the fading era of globalisation will limit the number of emerging economies that can prosper on exports alone, but the era of rapid digitisation has only just begun. This offers many developing economies a revolutionary new path to catching up with the living standards of the developed world. 



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China’s wolf warriors refuse to back down

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Late last month the EU, acting in concert with the US, UK and Canada, imposed sanctions on four obscure Chinese officials for alleged human rights violations in Xinjiang, where hundreds of thousands of Muslims have been systematically detained over recent years.

China retaliated immediately, imposing counter-sanctions on 10 European individuals, including five EU parliamentarians from five different political parties.

In doing so President Xi Jinping’s administration threatened a contentious trade deal provisionally agreed on last year between the EU and China, despite US opposition. The sanctioned parliamentarians’ parties are now reluctant to start reviewing the deal unless Xi’s counter-sanctions are lifted.

Before Beijing imposed sanctions on the EU MPs, it was expected that the European parliament would eventually ratify Xi’s geopolitical coup, which had strong backing from France’s Emmanuel Macron and Angela Merkel, the German chancellor.

But when Merkel and Xi spoke on Wednesday, China’s official account of the call did not mention the trade deal or Xinjiang.

“We had seven years of negotiations for the deal,” said Joerg Wuttke, head of the European Chamber of Commerce in China. “Now it looks like it will take another seven years.”

The Xinjiang sanctions exchange is just the latest diplomatic dispute that Xi’s pugnacious “wolf warrior” foreign ministry officials are embroiled in. Chinese diplomats are sparring with countries and organisations that Beijing enjoyed relatively good relations with during Donald Trump’s one-term presidency. But they are expressing no regrets.

Chinese vessels anchored at Whitsun Reef off the Philippines’ Palawan Island © Philippine Communications Operat/AFP

Yang Jiechi, China’s top diplomat, set the tone for Beijing’s clashes with a long lecture to his US counterpart on March 18 in Alaska, where he told Antony Blinken that no country would ever again “speak to China from a position of strength”.

Victor Gao, a former Chinese diplomat who worked for Yang, said his former boss’s diatribe was “groundbreaking”. “Chinese leaders believe they have momentum and time is on their side,” he added. “Nothing can stop their rise.”

Chinese state media contrasted Yang’s comments with paintings of foreign colonial powers lording it over late Qing dynasty officials, who were repeatedly humbled in a series of conflicts with European, Japanese and American enemies.

The country’s “century of humiliation”, according to the Chinese Communist party, ended only after its revolutionary victory in 1949.

“China today is not the China of 1840,” Xu Guixiang, a senior party official in Xinjiang, said last week. “The days of Chinese people being bullied by the west have passed. We are not an easy target any more . . . We will fight tooth for tooth until the end.”

Many Chinese officials viewed Trump’s years in office as an unprecedented “strategic opportunity” to build bridges with Washington’s frustrated allies. But analysts said that, like Trump, those officials also believed that the Chinese Communist party could benefit domestically from diplomatic confrontations.

“Heated nationalism is good for strengthening the legitimacy and authority of the central government and [Xi],” said Yun Sun, a Chinese foreign policy expert at the Stimson Center in Washington.

“It all comes back to [Xi’s] mentality and the course he has charted,” she added, especially as the CCP prepares to celebrate the centennial of its founding in July. “The party needs to demonstrate its strength and achievements. A soft approach is not going to work.”

Last week Beijing challenged comments by Tedros Adhanom Ghebreyesus, the World Health Organization director-general who had previously been criticised for his reluctance to confront Beijing. Tedros said that Chinese officials had withheld information from WHO experts investigating the origins of coronavirus.

“After coming under pressure from the Europeans, Canadians and Americans, Tedros didn’t want to give China a pass because that would have provoked a crisis with the west,” said a diplomat involved in the WHO’s deliberations.

“Meanwhile the Chinese had to stick to their rhetoric that ‘[Covid] is a bigger problem, we had it and we dealt with it, but now we have to look elsewhere [for its origin]. They have bats in Myanmar and Laos, too’,” the diplomat added.

“It also has to be seen in the context of what had just happened in Alaska where they said don’t lecture us and don’t talk down to us.”

Chinese diplomats have recently clashed with Manila, too, over an alleged incursion of Chinese fishing vessels in Philippine territorial waters, as well as Tokyo over Japan’s concerns about the Xi administration’s policies in Xinjiang and Hong Kong.

Wang Yi, China’s foreign minister, warned his Japanese counterpart on Monday not to join US efforts targeting China.

“A certain superpower’s will does not represent the international community,” Wang said. “As a neighbour Japan needs to show at least a modicum of respect towards China’s internal affairs.”

Steve Tsang, director of the Soas China Institute in London, sees no end to such disputes. “Xi has said multiple times that Chinese officials and diplomats must unsheathe swords to defend the dignity of China,” he said. “The wolf warriors are just acting on Xi’s call to arms.”

Additional reporting by Xinning Liu in Beijing



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