It will be a game of liar's dice when U.S. President Donald Trump meets in the Oval Office with China's top trade envoy, Liu He, on Friday afternoon. Both men will talk up their hand and each is likely to declare his country the winner, whatever the cards actually say.
The United States is due to raise tariffs to 25% on US$200 billion in Chinese goods on March 1, up from an already-increased 10%.
Not gonna happen.
The hot trade war is transitioning into a long, cold peace. No one wins in trade wars, and both sides want this one to end. Thursday's photo of a long line of suited men, and two ladies, squaring off over a white banquet table already looked like the inking of the Treaty of Versailles II.
China's economy has slowed to its slowest pace since 1990. That's somewhat inevitable because China's national output is now US$10.8 trillion, which is 13 times its size back in 1990.
But the recent slowdown has hit morale hard. Many businesses tell me that the "trade war is real." China has run out of ways to hit back at additional tariffs purely on the basis of trade. Don't mention it, but President Xi Jinping also faces pushback against his self-appointed role of emperor "national helmsman," basically president for life.
China and Xi need a victory. Liu, China's vice premier, already met with Trump at the end of January, photo ops all round, and will want to crow about whatever comes out of this one. It seems almost certain that will involve another Trump-Xi summit, what China now sees as a meeting of equals.
Trump also needs a quick win as he lost the government-shutdown showdown, is mired in wall-financing battles (what happened to Mexico paying for it?!), is dealing with turncoat lawyers and canceled hotels and has the disconcerting feeling that everyone he meets might be wearing a wire. Ending a trade war that is entirely his own doing is the simplest way to boost U.S. spirits heading into the next interminable election cycle.
It seems Trump has tired of this dice game, anyway. He never has shown much stamina in his battles. He bluffs a strong hand at the start, then falls back into mysterious musings that are at once threatening and optimistic.
Now he says that midnight on March 1 "is not a magical date. A lot of things can happen."
That sounds a lot like his verdict on North Korea last May, that "a lot of good things could happen, a lot of bad things can happen." And it's a lot like his analysis of the detention in Canada of Huawei Technologies executive Meng Wanzhou. Trump says "it's possible that a lot of different things could happen" - including that chip falling on the table in this game.
I thought it was the Chinese who are supposed to be "inscrutable."
China is likely to open its checkbook. Its chip will be to buy more semiconductors and allow in U.S. autos under more favorable terms. For the most part, it's the lack of vehicles that appeals to Asian buyers that's the problem there, though.
According to Bloomberg, China is proposing to buy US$30 billion per year of U.S. agricultural products, particularly soybeans, corn and wheat. That would be a commitment above existing purchases; it boosted soybean purchases by 5 million tons last time Liu and Trump met. And it's a commitment due to last the length of whatever agreements come out of the talks. Futures of all three crops rose in Chicago trade.
U.S. Agriculture Secretary Sonny Perdue counters that it's premature to talk specifics. "If we reach an agreement on structural reforms, we can recover markets very, very quickly," Perdue said.
That's the beef. Crops are the small print. The real meat is in the structural changes promised by the Chinese over barriers to entry, intellectual-property protection and forced technology transfer.
The measures to enforce any changes offered will be equally important. China has a history of promising things that it either never delivers or takes decades to deliver, then changes the rules.
China promised to open up the vast majority of its industries and level its domestic playing field when it entered the World Trade Organization in 2001. U.S. trade officials, in their annual report on China's WTO compliance, now say they "erred" in supporting China's entry to the WTO on terms that have proved "ineffective" in pushing China to become open and market-oriented.
Indeed, the U.S. Trade Representative says Chinas has used WTO rules to dump its state-sponsored goods on world markets. The same time it opens an industry, it puts in place "more sophisticated -- and still very troubling -- policies and practices." Remarkably, the situation is worse now than before.
One likely stipulation would be that those threatened tariffs go back into effect if China doesn't meet a set of conditions. This would be an excellent idea, if the Chinese accept. Specific milestones might be less impressive but are far more easily measured than broad big-picture deals.
There's a fundamental clash of ideologies here, and I'm not sure how it can be resolved. The Communist Party has tightened its control over China's economy and written itself into the constitution of many corporations. There's often a Communist Party office within a company, reporting to the party how things are going.
The Made in China 2025 plan targets 10 industries in advanced manufacturing. The whole idea revolves around promoting Chinese products, technologies and companies to replace foreign ones. Then you've got officials and Chinese companies intent on making any foreign partner hand over its technology in a joint venture, basically until the Chinese company figures out how to copy it alone.
How does that setup become market-oriented?
The Chinese are adamant that no one can tell them how to change their own rules and economic structure. They've so far made vague comments about protecting intellectual property and trimming hefty subsidies to state-owned enterprises, or SOEs.
SOE reform has fallen well down the list of priorities given China's domestic slowdown. And much like its stance on how it treats Hong Kong, Macau, Taiwan, and all the Muslims in its concentration camps, China says everyone else should stay the hell out of its domestic matters.
"No one is in a position to dictate to the Chinese people what should or should not be done," Xi told China's power brokers, and the nation, in December. Significantly, that admonition came in a speech to mark the 40th anniversary of the start of China's economic reforms.
The United States has sought all along through this trade war to dictate what China is going to do. We'll soon see how it responds.
Anything could happen!