This article was published by The McAlvany Intelligence Advisor on Friday, September 14, 2018:
The Chinese are different. When travelling to China, Greg Rodgers offers this advice: “The concepts of saving face and losing face guide daily life in Asia. Causing someone to “lose face” … is a serious infraction.” He advises travelers:
The abstract concept of face obviously has nothing to do with anatomy, but instead can be described as a combination of social standing, reputation, influence, dignity, and honor. Causing someone to lose face lowers them in the eyes of their peers….
In a communist government, losing face could cause one to lose his life.
So how would Mr. “Art of the Deal” Trump deal with someone who would rather give up his life than accede to his demands?
From a western perspective, the timing couldn’t be better. The first negotiations with Chinese communists involved Steve Mnuchin, Trump’s Treasury Secretary, Larry Kudlow, director of his National Economic Council, and other top people, and they didn’t go well. The second set involved “midlevel” officials from both the U.S. and China, and it didn’t turn out much better. On Wednesday, Mnuchin issued a third invitation to try again to get a deal done. The invitation went directly to Chinese Vice Premier Liu He, President Xi’s top economic advisor.
Circumstances have changed in the last few months. Threats of a tariff “war” have barely nudged the U.S. stock market (the S&P 500 Index is up eight percent for the year) while they have knocked the Chinese stock market down by more than 10 percent. The U.S. economy is on a tear, while the Chinese economy continues to slow. Exports, capital investment, and consumer spending there are all in decline compared to a year ago.
Attempts to rein in the country’s runaway debt – estimated to be more than two and a half times the value of the entire Chinese economy and forcing credit rating agencies to downgrade that debt – are contributing to the slowdown. Julian Evans-Pritchard, senior China economist at Capital Economics, said that “headline official indicators are now in broad agreement that the [Chinese] economy is losing momentum,” while Louis Kuijs, head of Asia economics at Oxford Economics, added that the prospect of additional tariffs is “already dampening business confidence and delaying investment” there.
This makes it a perfect time for the President to make his move. Said Robert Carnell, chief Asia-Pacific economist at investment banking firm ING, “this is probably the best time for the U.S. to go back to the table … [this time] with a ‘take it or leave it’ type of trade demand.”
Previous negotiations have resulted in offers by Chinese officials merely to promise to buy more American goods, but without any movement on the big three issues: stealing of American technology, ending subsidies, and protecting American intellectual property. Efforts in the past by the Chinese have succeeded in hollowing out America’s basic industries and capturing vital technology (both commercial and military), and allowing the communist Chinese government to gain at America’s expense. Enormous trade imbalances have given the communist Chinese the opportunity to build their economy to the point where their military power is threatening America’s while forcing the U.S. increasingly to depend on its enemies for vital raw materials. They have also allowed the Chinese to purchase American companies holding vital patents and technology desperately needed to bring that backward nation into the 21st century.
Trump sees his opportunity and is taking it. Already in play are tariffs on $50 billion worth of Chinese imports, with another $200 billion ready to go at a moment’s notice. And the president has warned the Chinese that, unless they come to terms, he will put tariffs on all the rest of Chinese goods seeking customers in the United States – “on short notice, if I want,” said the president.
Said Steve Moore, a fellow at the Heritage Foundation,
Because the U.S. economy is so strong, because some of these other trade deals are in the bank or on the precipice, [Trump administration officials] feel they are going to be negotiating with China from a stronger position than if we’d done this three months ago.
It’s like dominoes. It puts more pressure on the ones [like China] that don’t have a deal.
Given the Oriental cultural mandate that one must save face (or lose his life under communism), just how does Mr. Trump plan to give his ultimatum – “take it or leave it” – and expect to cut a deal?
Greg Rodgers offers Mr. Trump a partial answer:
Drive a hard bargain, but always give in just a little on your final price. This allows the merchant to not feel as though they lost something.
And then Rodgers warns Mr. Trump:
Don’t worry: no matter what they claim, they’ll never actually lose money on a sale.
TripSavvy.com: Concept of Saving Face and how to deal with it
The Wall Street Journal: U.S. Proposing New Round of Trade Talks With China
MarketWatch.com: Here’s the hit stocks have taken from trade-war fears so far
Money.CNN.com: China’s economy slows just as the trade fight begins