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What Could Repair The U.S.-Chinese Relationship?

The United States and China have spent more than 40 years building a relationship by increasing their economic, academic and political connections — a bond that even withstood the 1989 Tiananmen Square protests. But the relationship is now so frayed, concerns exist that it may never fully heal.

The election of Donald Trump to the presidency and the fervor with which he brought to fair and open trade is at issue. While it is no doubt an honorable goal — and one pursued by every president since Richard Nixon — the tariffs that he has implemented on Chinese exports have hurt American businesses and have done lasting damage to the 40-year courtship between the two nations.

“We find that U.S. manufacturing industries more exposed to tariff increases (have) experienced relative reductions in employment (because of) rising input costs and retaliatory tariffs,” write Federal Reserve economists Aaron Flaaen and Justin Pierce. “Higher tariffs are also associated with relative increases in producer prices via rising input costs.”

The political price on Trump is taking its toll, costing him, perhaps, some support among natural gas and oil developers who fear that they may lose access to China that needs oil and gas to grow its economy. As Chinese leaders have emphasized, they can get those natural resources from regions that, logistically, make more sense: Australia, Qatar and Russia, which is already working with China to build pipelines and to supply oil. And once China signs new long-term contracts with other suppliers, it will be too late for American producers.

China, for example, imported $254 million in liquefied natural gas, or LNG, from the United States in January 2018. But after May 2019, those imports stopped.

“Phase One” of any resolution was announced in December. Still, it is hard to see how China gets past several obstacles: For starters, there is the conflict in Hong Kong — one in which it feels the United States should butt out. And then there’s Trump’s call for allies to cut off Huawei, China’s telecom giant.

The general tenet of the initial agreement is that China will buy $200 billion worth of American goods and services over two years. In exchange for that, the United States will reduce some tariffs and postpone adding any new ones.

“My only question is who is the bigger enemy, Jay Powell or Chairman Xi?” Trump previously asked in a tweet, referring to his hand-picked Federal Reserve Chairman and the leader of China, President Xi Jinping.

Sketchy Deal

On the surface, the so-called truce sounds sketchy: If China buys from the United States, it will not be purchasing such goods and services from someplace else. That would trigger a chain reaction among China’s other trading partners. Just as conspicuous: the United States is not relying on the free market to make those choices but rather, it is asking China’s centralized government to pull the levers. It’s even stranger because Trump had previously “ordered”— via a tweet — American companies to leave China and to return to “HOME.”

“You just cannot make up US$200 billion from agro-foods and energy,” said Garcia Herrero at Natixis, in an article from the South China Morning Post.

Even before his impeachment, Donald Trump had been damaged political goods. But the president, nonetheless, has caused each side to go into its corner. China poses no militaristic threat to the western world. But it is an economic “rival” — one that requires other free-market competitors to up-their-game.

China is investing abroad through its “Belt and Road Initiative” and it is doing so mostly by allocating capital to developin