Threat on not a trade war trade war. Take two things as givens: 1) Trump wants a deal but is willing to walk away. 2) China has no interest in making material changes to economic policy. I think we have overwhelming evidence supporting both points. This frames our analysis 1/n
We often look at only one side of a negotiation (in this case Trump) with people saying things like he lost or other such nonsense but give no consideration to what is the other side (China) prepared to do. Fundamentally, there is scant evidence China is willing to make any 2/n
Material concession to change its control over the economy, protectionism, non-tariff barriers, IP theft and list of other issues that would go on for a long time. If nothing else is clear to people about China's economic management, this should be clear by now. So we have 3/n
A simple question: what do we do with the complete expectation that China will not agree to any material concessions and if they do, we expect them to start cheating the next day? (All historically and currently accurate statements) Let me complicate things even further 4/n
Pence talked about how issues like Hong Kong, Xinjiang, Huawei, and related issues should be dealt with separately. If we want to impact change on these issues, what is the best way to realize change? Explicitly linking or delinking from trade? This is where it gets fuzzy 5/n
I am increasingly of the mind that Trump should walk away from anything but a great deal that covers all economic issues. A phase one deal increasingly seems meaningless like a less cool purgatory. We have no reason to believe China will make material changes and have said 6/n
They won't in most areas. Even if they agreed to something there is little reason based upon the record and previous collapse to believe they would execute anything agreed to. A bad deal with no execution would arguably the worst outcome. So why do these other issues play? 7/n
Huawei should be treated as a national security threat on a stand alone basis. Luckily the penalty is a clear economic penalty. China however wants to link Huawei into the trade deal for this exact reason. It should remain stand alone but with clear penalty. Hong Kong 8/n
and Xinjiang are tougher but should remain separate but with a major caveat. There needs to be clear economic penalties for what is happening in those places. By that I mean, the US should not agree to back down on Hong Kong imposing various penalties as part of trade deal 9/n
But there needs to be clear economic penalties imposed due to China backing out of its Joint Declaration agreement on Hong Kong. Same thing with Xinjiang. That is a clear human rights atrocity. China is not going to be swayed with just words and needs economic penalties to 10/n
to make clear the severity of the problem the US considers Xinjiang. The reason this matters is that all three, and others I left out, will incur economic costs or blow back. China wants them in the trade deal where they will likely be ignored. They should be separate. 11/n
Imposing costs for those events likely lower the probability of an agreement and should be covered as policy with punitive measures taken on their own merits. To wrap this up, the term I will use is that Trump (like any president) is 0 Presidential Wins Above Replacement 12/n
Not because of their inherent goodness or badness but due to the counterparty China who has said and shown it will not maker material changes. This is why I say the fight is both long term, good for the fights sake, and not measured at Twitter speed. I would have done some 13/n
things differently but difficult to see any President realizing any materially different outcome. The President would make a big mistake settling for a materially substandard deal with little chance of execution and he should impose tangible costs on human rights. Done.
