At best a bluff, at worst blackmail

Editorial | Mary Ma 7 May 2019

Contrary to speculation, China said vice-premier Liu He will fly to Washington this week for another round of trade negotiations - despite the unpredictable US President Donald Trump's threat to hike tariffs on Chinese goods on Friday.

The question is: will this week's talks be the last and final round between the two countries that together account for more than one third of the world's total economic output?

It's possible a last-minute deal could be reached. The development up to now has all the trappings of a high-stakes poker game, in which one side raises the bet to the highest possible limit to frighten the opponent into folding.

Beijing's reaction was restraint. Although its statement that Liu would still lead a team to meet his US counterparts may anger hardline communists at home, the response was rational. There's an equal chance a deal could be struck.

The twists and turns in Trump's Sunday tweet were characteristic of the American commander-in-chief. Remember how Trump had torn apart an agreement his treasury secretary Steven Mnuchin reached with Liu shortly after the trade war started?

Market reactions to the anti-climax were spontaneous. Had Beijing reacted by deciding against Liu going to Washington this week, the Hang Seng Index would have extended its losses instead of recouping some of them.

That both sides are sticking to the meeting plan shows they're resting their hopes on exploiting each other's Achilles heel.

Emboldened by strong economic data -- including the lowest jobless rate in half a century and record-high Wall Street indexes -- Trump probably thinks he now has more capital than ever to jack up his bets for an even higher return.

The weakness that he's spotted in mainland China must be the factory closures, as manufacturers continue to relocate their production lines out of the country to avoid political uncertainty erupting from time to time. That's causing a great deal of stress in China, both economically and socially.

Trump is hoping the threat of increased tariffs will force Beijing to bow to his demands on intellectual property and technology transfer.

On the other hand, Beijing leaders know Trump is desperate to reach a deal as much as they do. He's already in an election mode, amid the growing likelihood the 2020 presidential election will be a battle between him and former vice-president Joe Biden, a Democrat.

That's building pressure on Trump to conclude a deal with China, so that he could keep alive the so-called "great" story he's been bragging about to Americans.

Results of last year's mid-term elections suggest his bravado could be losing appeal to voters.

It isn't the first time Trump has turned the negotiation table upside down. When he was still in business, he bankrupted some companies to intimidate creditors into accepting his terms.

And as recently as February, he walked out of a Hanoi summit with North Korean dictator Kim Jong Un - even though both sides had agreed in advance on certain points.

Perhaps a trick that has been repeated numerous times is wearing thin.

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