The Virtual Summit

• 17-Nov-21
• admin

Photo by Karolina Grabowska from Pexels

The two most powerful men in the world had a chat today.   It went well.  

From the opening of the Xi-Biden virtual summit, it was warm and fuzzy.   Over three and a half hours, they talked.   That was very commendable, particularly for a man nearing 80 staying past midnight…  Kudos to Mr Biden.  

On the Chinese side, Mr Xi displayed a confidence, almost a kindly attitude to a “old friend” he knows is under severe domestic pressure not to acknowledge any friendship with him.   Nevertheless, he was in a position to express that friendship to Biden and he did.   And the body language was also extremely cordial.  

We will hear more about detailed contents of the talks over the next few days as the media dissect every issue that was reported by both sides to have been discussed.   But one thing has already been made known.    The Americans will not attempt to change the Chinese style of governance or the big bad communists the country is psychologically programmed to hate.  

The other big thing is that there will be no war over Taiwan.

War in the Taiwan Straits has always been impossible to contemplate for both the Taiwanese and the Americans, and Biden has stepped away from his CNN townhall hawkish declaration a couple of weeks ago that the US was committed to defending Taiwan (already refuted by Administration officials).   Now, Biden unequivocally says the US will not support Taiwan independence.

This is the only scenario that makes sense.  We have made the case previously, and there is not much more we need to say about that.  It is heartening to be right so quickly, because it proves that only dumbasses cannot see it for what it is.   Whatever the ideological positions facing the Americans that lead them to think that conflict with China is inevitable, the economic problems facing the US are far more serious and the solutions lie in resuming cooperation with the Chinese.  As they say in America, it’s the economy, stupid… Graham Allison, author of the Destined for War, will be proved wrong.

Both leaders also left no doubt they shared the vision that bilateral cooperation is essential.   The question is not whether there should be cooperation, but one of how.

Although we did not hear that the tariff war was discussed during the virtual summit, it is clear that this will end soon.   It is interesting to see that Treasury Secretary Yellen was in attendance during the meeting, and her refrain recently has been that the Trump tariffs have hurt Americans and they now one of the main causes of the current bout of inflation that ordinary Americans are facing.     

The tariffs on the American side will certainly be removed.   Of course, if they do that, and the Chinese don’t remove the tariffs on their side which were imposed as reciprocal action during the opening moves of that contest of will, then it will be a political disaster for the Biden Administration.   The meeting today will lay the groundwork for Trade Representative Catherine Tai to talk to her counterpart in China on how the two countries can get those tariffs removed.   The tariffs were idiotic in the first place (as such measures were long known to be such after the Smoot-Hawley Act of the Great Depression era), a reflection of Trump’s lack of intelligence.   But if after five years of self-inflicted pain, the Americans still do not initiate the end of that debacle, then one can only conclude that foolish pride would be a worst trait than stupidity.

This is a big win for the Chinese because in the four years that Trump has levied those tariffs, it did not do anything to the Chinese economy.   Chinese GDP did not slow down at all, their exports to the US increased and the Sino-American trade deficit worsened.   In the goodwill emanating from today’s virtual summit, there is clearly room for discussions on tariff reductions to begin; before today, Ms Tai could not even get a call into her counterpart in Beijing.

The energy crunch (ie rising oil and gas prices) is another major source of inflation.   And China is the world’s largest importer of energy, and energy policies between the two needs to be coordinated.   The two countries cannot afford not to be talking. 

And there is also the climate problem.    The two largest emitters of carbon have already agreed to work together three days ago, when they made a surprise announcement to collaborate on ending the use of fossil fuels, particularly coal, at the end of the COP26 conference in Glasgow.    Without that agreement, COP26 would have ended in political disaster.  This is a demonstration of the usefulness of China and America being on the same side.  

Within one calendar week, the two countries have shown to the world that they are able to put aside differences and give peace a chance.    It is now up to the hardliners on the American side to stop their diatribes against China, end labelling it to be the bad guy, and begin to solve domestic problems the country is now saddled with.  That could be wishful thinking on my part, but in the end, common sense must prevail.   

In the last five years, the Chinese have demonstrated a stoicism and calmness that is quite obvious, even when the US threw everything they could at them, short of military action, to make Beijing flinch and come begging.   They did not, even in the face of some absurd allegations made by the Americans (we all know what these are), and instead, pulled off stronger economic performance and bigger bilateral trade surpluses, a completely different outcome to the devastating coronavirus, and most importantly, a national unity in the country that is remarkably absent in today’s America.   

That was all reflected in the demeanour of Xi Jinpeng today.

Wai Cheong

Investment Committee

The writer has been in financial services for more than forty years. He graduated with First Class Honours in Economics and Statistics, winning a prize in 1976 for being top student for the whole university in his year. He also holds an MBA with Honors from the University of Chicago. He is a Chartered Financial Analyst.