Trump's Face-Off on North Korea With Face-Conscious China Will Fail

 | Sep 05, 2017 | 11:00 AM EDT
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Bear in a China shop?

That's what President Donald Trump appears to be, with his threat to cut off trade with any nation that does business with North Korea. China, by implication, is first and foremost among them.

If Trump continues that particular rampage, it will be damaging in the extreme. Like many things that stem from Trump's Twitter account, the outcome is not possible, the threat impractical, and the message counter-productive.

Trump needs China right now, diplomatically, and needs China on trade, too. And China needs him.

And what China needs at this moment is, in fact, a completely out-of-character Trump -- the Middle Kingdom requires him to be diplomatic. It requires him to be, if not a friend, then a solid partner.

China is now as embarrassed as the United States at North Korea's behavior. Supreme Leader Kim Jong-un has called Trump's bluff, delivering a threat when threatened not to deliver any more threats. But Kim has also shown immense disrespect to China.

Like many Asian nations, China is a country that places great importance on "face" -- the need for public status and respect. The Middle Kingdom is obsessed with emphasizing and ensuring its increasingly central role in the world economy. Kim's latest explosion is very badly timed in that respect.

The nuclear-bomb test on Sunday came the day before Chinese President Xi Jinping himself gave the welcome address to a summit of the BRICS nations in the coastal city of Xiamen. His well-prepared remarks studiously ignored any mention of developments across the border. 

Xi stood onstage, holding hands with Russian President Vladimir Putin as his right-hand man, and South African President Jacob Zuma on his left. They in turn grasped palms with Brazilian President Michel Temer and Indian Prime Minister Narendra Modi.

Those leaders represent three of the five most-populous countries on the planet. In total, the BRICS make up 3.6 billion people, 40% of the world's total. That's a lot of eyeballs.

Beijing's best and brightest welcomed the most-influential of their developing-market peers at a point when a bomb went off that felt like an earthquake to the Jilin Province Chinese citizens living near the border.

If there's anything China's Communist Party is more worried about than its image on the world stage, it is its image at home. As a non-elected government, its authority stems in large part from ensuring the safety and economic security of its citizens. Suddenly, that's seriously in doubt.

China accounts for about 85% of all of North Korea's trade. It could close, basically, the entire country down. But I do believe that North Korea's leaders would "rather eat grass," as Putin has it, than give up their nuclear program. 

Of course, Kim Jong-un's dad, the equally unhinged Kim Jong-il, used to send a chef to Tokyo's Tsukiji fish market purely to procure sushi for that evening's supper. So there's no chance the younger Kim will be eating grass anytime soon. If he was a steak, he'd already be a nicely marbled wagyu.

Sanctions worked on a nation such as South Africa, land of my father, because it had a fully functioning economy. North Korea does not. And even though business restrictions hurt in Pretoria, it was the fact that South Africa's sports teams were unable to compete internationally that hurt more than any economic impact.

It is China that would pay the price of sanctions. It cannot withstand 25.2 million North Korean refugees flooding across its borders. A destabilized, starving neighbor is something Jilin and Liaoning provinces, some of China's poorest, literally cannot afford. Xi cannot stand 1.4 billion Chinese worrying about that prospect, either.

Xi is preparing for a key transition of power that will see his first five-year term give way to his second. China's strongest leader since Mao Zedong wants to consolidate his place as the country's "core leader." The closed-doors machinations that will allow that to happen become more and more fraught as North Korea literally explodes. The apparent inability to control Kim and secure China's border gives Xi's enemies within the party more and more power.

I wrote last week that Trump is mishandling the North Korean crisis. The more he threatens actual war, the less credibility he has. And his consideration of unilateral action is alienating America's key allies on this front, South Korea and Japan.

Trump has consistently conflated trade and diplomacy, an approach that might work well on a corporate level, but does not stand well on the world stage. I'm watching for any fallout in the markets. It's clear they put little credence to any odds of actual conflict.

Japanese stocks fell for a second day on Tuesday, with the Topix down 0.8%. But South Korea's Kospi sank only slightly, technically in the red with a loss of 0.04%. Korean stocks are still sitting on a gain of 16.9% for the year, a rise that saw them set an all-time high.

They have yet to factor in any real disruption in trade or China-U.S. relations. But instability in financial markets is a far more-likely outcome than even a trade war with China, Krzysztof J. Pelc tells my colleague Dorianne Perrucci.

That's most likely to occur, Pelc says, through a series of "miscalculations" in the way of industry-specific tariffs that lead to countermeasures. The sums are huge. China and the United States do almost $650 billion a year in business, in both goods and services.

Even if China cut off all trade with North Korea, it would hardly show up on its balance of trade. China does about $5.25 billion in trade with North Korea in either direction. It is a source of very low-cost, unofficial labor for some Chinese companies. It is also a tiny market for Chinese appliance makers and the like, as The New York Times explains.

Beijing's leaders might be happy to drag Trump to the negotiating table with Kim. Any one-on-one talks between the United States, as hard as they may be for Trump to resist, would be a mistake.

Trump would be better served linking arms with his "bricks" -- South Korea, Japan and, yes, China -- over North Korea. For that to work, China needs to be on stage with the United States. It needs face.

Increased sanctions on North Korea, it is increasingly clear, will do nothing to resolve the standoff with Pyongyang. Increased sanctions on China will only drive away a powerful partner who could, out of this all, become a very powerful ally.

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