In the art of brinkmanship, trust Donald Trump to walk back from the edge. Banning Huawei, China’s tech jewel, from doing all manner of business with American companies was a step too far, at a time of raging US-China tariff war. (Read “Huawei: gloves are off,” published May 23, 2019). Six weeks later, the Madman has softened up, allowing Huawei to buy from US firms. (The firm still cannot sell its hardware or services in the US).
Many analysts have cautioned not to read too much into this u-turn by Trump. After all, the Donald can change his mind any time, whether it makes policy sense or not. Even Huawei was circumspect in welcoming this development. Besides, there is no clarity yet on what kind of hardware and software the Chinese giant can or cannot buy from its American counterparts. Coming days may bring clarity on the burning question of whether Google’s Android can now be installed on latest Huawei wear.
However, there is reason to believe that the u-turn over Huawei was inspired by some cold, political calculations in DC. American belligerence or conciliatory mood towards Huawei (and other Chinese entities) indicates whether they want to escalate the tariff war with China or ease it for some time. For Huawei as a company, and also for its suppliers and users all over the world, though, this is not an idea situation. But it serves the White House’s theory of applying maximum pressure through targeted means.
Currently, it looks as though China would not agree to a trade deal that facilitates American businesses in the Chinese market, no matter how high the tariffs are raised by the Trump administration. Economic tensions with the US can hurt the Chinese economy, but China also has a better capacity to cope. Politically, President Xi is firmly placed in his seat for at least until 2023; he doesn’t have to win an election. And economically, Xi’s economic team has various Keynesian means at their disposal to mitigate the anxieties among the people and the markets.
On the other hand, it is Trump who cannot play the waiting game, for he is up for re-election next year. As the Democrats look to challenge him forcefully next year, Trump cannot afford to preside over a falling US economy in 2020. Right now the only thing going for his re-election prospects is a healthy economy. If China’s troubles spill into the global market, then it will affect US markets as well as retail. A slowing economy will be blamed on Trump’s tough ways of dealing with countries both friends and foes.
Thus, there was some give and take at the G20 in Osaka last week to make both sides look good while going back to the table. The US eased Huawei sanctions and signaled it won’t tariff more goods; the Chinese promised to buy more farming products. And to sweeten the deal, they arranged his meet with a chuckling Chairman Kim. A delighted Trump collected another historic photo-op for his album.
In a few months’ time, Trump will not be able to threaten other countries economic warfare with the same zeal that he has displayed thus far. This half of the calendar year is when negotiations will need to be re-started and made progress on. Come 2020, Trump will have a weaker hand, something which can be exploited by Beijing, and other offended capitals. Huawei has a reason to feel optimistic.