The mixed signals just keep on coming.
Ahead of a planned meeting between US President Donald Trump and the Chinese vice premier Liu He markets have been relatively sanguine. US equities continue to roar away, but the dollar too has strengthened somewhat. And Chinese markets in Hong Kong and Shanghai also showed a certain resilience this week.
So, it will be interesting to see what Mr Trump and vice premier Liu He come up with in terms of concrete announcements.
Most commentators are expecting Chinese-US talks to fall short of the agreement required by the beginning of March if Mr Trump is not to slap an additional US$200bn worth of tariffs on Chinese goods.
There is some speculation however that if enough progress is made, Mr Trump will see his way towards extending that deadline, at least for a short period.
That in itself would cheer markets at a time when traders have been blowing hot and cold on the potential outcome of these talks.
But the thinking at the moment is that Mr Trump has the stronger hand. Domestically, although he remains an incredibly divisive figure, on China he has broad support. That in itself is a remarkable about-face in US political consensus, such that Mr Trump must surely be wishing he can replicate in other areas of the domestic arena.
But on China, in a way that was not apparent in the Obama era, Americans are clear that there needs to be firmness and a willingness to compromise only so much. The neoliberal view that economic growth per se is good, where-ever in the world it happens, is dead. Critics might argue that Chinese behaviour with regard to intellectual property has exacerbated this view, but it was probably coming anyway. What’s remarkable is the speed with which Mr Trump has brought about this change.
But he has other things in his favour too. While the US economy continues to boom, the Chinese economy is gradually being forced to give up the growth rates it’s been accustomed to. China is still in growth, yes, and of course its economy is so much larger than it was when growth was reckoned in double digit percentage terms.
But that’s not the real point. In the end, if President Trump’s approach to the economy fails, he will get voted out of office and a new administration will come in to pick up the pieces. But if the regime represented by vice premier Liu and his boss Xi Jinping fails, it’s conceivable that the entire political edifice in China could crumble.
The flexibility of regime change which is built into the very core of the western democracies is not available to the Chinese. That’s why Chinese corruption drives are so prominent – how else can they get corrupt, or even just underperforming officials out of office?
So, with the Chinese economic miracle beginning to wind down, Mr Trump’s application of heavy negotiating pressure appears perfectly time. The Chinese, of course, will on no account want to lose face, and that in itself might prove a significant stumbling block.
There’s also the long national memory in China of nearly 200 years of exploitation by western powers in the 19th and the early part of the 20th century. The Americans played a central part in that exploitation, alongside the British and the French, and there is a certain feeling that Chinese intellectual property theft and other flouting of WTO rules is simply a small part of a giant payback that the country is owed for two centuries of humiliation. This psychological element to the Chinese position doesn’t seem to be well understood by most Americans, and it may be that this factor more than anything else goes towards the eventual long-term undermining of any deal that gets done in the short term.
Still, for the time being, the global economic system as is is serving both countries pretty well. Yes, the manufacturing base of the US has been severely mauled by the rise of China. But it’s arguable that that would have happened anyway, even if it’s equally true that Mr Trump would never go to his core constituency with such a hard truth.
In Britain, manufacturing has been severely curtailed over the past 50 or 60 years, and although there was considerable social cost to that transition, the wider economy has held up relatively well. That now seems to be the position in the US too, and for all Mr Trump’s posturing about supporting blue collar workers, it will take more than a trade deal to roll back all those years of manufacturing decline.
Instead, the US can seek to balance the ongoing relationship more squarely in its own favour and, which is perhaps the thornier issue, to see if such a re-balancing on paper can actually be enforced in practice.