China US Trade 'breakthrough': Who blinked first?

After months of a “vicious cycle of mutual retaliation”, as Xi Jinping has put it, Donald Trump and China's president seem to have come to a truce after their first meeting in nearly six years.

Meeting in South Korea, Xi agreed to stop withholding China’s rare earth exports for a year and start buying soy beans from America again. While Trump said he would reduce tariffs and suspend port fees on Chinese ships.

But how long will this amicable relationship last? Will all of this signal a closer tie between the world’s two biggest economies?

On this episode of the Fourcast, Matt Frei is joined by Victor Gao, vice president of the Centre for China and Globalization in Beijing, and Dr Yu Jie, senior research fellow on China at Chatham House.

Episode Transcript

(00:00):
This trade war was the wrong trade war for the United States
to start a fight to start with. My concern is that the greatest
predictability in the world of today is the unpredictability of
the United States, and the greatest certainty in the world
of today is the uncertainty of the United States and
unfortunately, President Trump. Hello and welcome to the

(00:26):
forecast. After months of a vicious cycle
of mutual retaliation, as Xi Jinping has put it, Donald Trump
and the Chinese leaders seem to have come to a truce in their
first meeting in nearly six years.
Speaking in South Korea, XI agreed to stop withholding
China's rare earth exports for ayear and start buying soybeans
from America again, while DonaldTrump said that he would reduce

(00:48):
tariffs and suspend port fees onChinese ships.
But how long will this amicable relationship last?
Will all of this signal a closertie between the world's two
biggest economies? Well, to discuss this, I'm
joined now by Victor GAO, vice president of the Centre for
China and Globalization in Beijing, and Doctor Yujia,
senior research fellow on China at Chatham House.

(01:10):
Welcome to you both. Let me start with you, Yujia.
Is the trade war over? Has it been suspended?
And who's won, if anyone? Well, the truth is it's not over
yet. What we have right now is a
temporary ceasefire between the world two largest economies.
Really, if you're judging from the details the two side has

(01:32):
been offered for now, I think we'll come to the stage that
both end and realize how difficult it is and how
dependent each other is towards the economy and has there's a
necessary ceasefire for the moment.
However, I think really judging from the words of very cautious
words from the Chinese state media here is to say the

(01:53):
protracted competition with United States difficult
relationship between Beijing andWashington is really here to
stay. So I think what we have today is
both the leader realise politically it's important to
have this temporary ceasefire. Victor Donald Trump after the
meeting said on Air Force One that the meeting had been
amazing. Was it amazing for Xi Jinping?

(02:17):
No, definitely not. This trade war was the wrong
trade war for the United States to start the fight to start
with. China is on the receiving side,
and whatever China's doing is inretaliation against the wrongful
acts by the United States. And now the United States have
felt the heat from the Chinese side has blinked again and

(02:39):
again. I think the United States
realized that it is futile for the United States trying to
achieve a chokehold against China because China has enough
wherewithal to fight back. This is the reason why the two
sides have decided to back off from each other, at least
temporarily. And I think going forward, the

(02:59):
litmus test is whether the United States really orders
whatever it has agreed in its summit meeting in the Republic
of Korea. And that will decide whether
China will again retaliate, retaliate against whatever the
United States may want to changefrom what they agreed in South
Korea. But as Julia said, they need

(03:21):
each other and hasn't, you know,really the saga, the up and down
the trade war of the last nine months since Trump took office
again shown us, Victor, that actually they do rely on each
other. China needs America's markets.
America needs China's rare earthmetals.
Just, you know, to mention two items.
Absolutely. China and the United States can

(03:41):
do each other better if they really respect each other and
deal with each other as equal. If the United States wants to
bully China and try to suffocateChina, first of all, it will not
succeed. Secondly, it will really suffer
the retaliation from China. China has never initiated this
round of trade war or tariff war.

(04:02):
It is always the United States which wants to fight against
China, and I hope by now Washington has fully realized it
is futile for the United States trying to suppress China by such
wrongful acts of tariff war. And China has demonstrated its
consistency in terms of its position and policy of fighting

(04:24):
back whenever the United States wants to bully China.
And China demands to be treated as a complete equal partner with
the United States, rather than anything less than an equal
partner. Yujia, do you think that China
holds stronger hands in this tussle or America?
Or are they literally both equal, although they want

(04:45):
different things obviously? Well, I think they're actually
mostly equal and obviously they want different things.
And 1st of most for China, I think what they really want is
to increasing its economic strength and also try to enhance
in this capability on high end technology.
That is to say, it can't withstand geopolitical pressure
from the United States and also from the connected W.

(05:07):
Now secondly, I think in here asI said earlier, politically both
leader won't have some kind of temporary truth and for Donald
Trump and he's able to justify to his domestic audience that he
has managed his relationship with China, managed tariff
issue. Whereas I think ready for
Beijing, it's really a matter oftaking this as a stalling

(05:28):
approach, of taking a longer time to buy his time and try to
strengthen his own domestic economic resilience.
So I think both want this ceasefire, but for very
different reasons in here. Do you think the whole trade war
the last 9-10 months was completely pointless Juja?
Well, no, it's, I think surely it is really a sense of testing

(05:52):
who has the strengths and who blink 1st.
And obviously Beijing has reallytaken a playbook provided by
United States, that is to say using the maximum pressure to
your opposition to achieve what I want.
And I think that's the playbook Beijing has learned.
So it put in a way that I think United States has inadvertently

(06:13):
become the best teacher for China and how to be a
superpower. Victor, what's your response to
that? Well, China does not need an
additional teacher. China does not want to be a
superpower China. China just wants to be treated
as an equal and on fair basis. Hang on a minute, I'm going to
interrupt you. Then you said China doesn't want
to be a superpower. Come on, China wants to be a

(06:36):
superpower. China is a superpower.
A superpower by Chinese definition.
There's some country very abrasive, very much domineering
against others, and never treatsother countries as an equal.
Now, this trade war or the tariff war is completely
pointless. It shows that the United States

(06:56):
cannot win this trade war. And I hope President Trump will
tell the American people that itis the American people who will
eventually pay the bulk of all the tariffs charged by the
United States against all the other countries, including
against China. China will never pay a single
penny of the tariff charged by the United States against
China's export to the United States.

(07:17):
Therefore, I truly believe this trade war is really Much Ado
about nothing. It demonstrates the United
States doesn't care about free trade.
It really wants to throw a wedgeinto free trade.
For what? For damaging and growing its own
reputation and respectability. How could he be so sure that

(07:40):
China will go on? Go on.
Yuja, please weigh in. Sorry, can, if I may, if I may
add in here, I mean it's not to disregard or disagree with
Doctor GAO in here. I think it's what we have in
here right now is a finally AG2 framework and has been admitted
by United States. Really, I'm speaking from the
evidence from the tweet that hasbeen sent at the White House

(08:01):
this morning by saying the G2 meeting is about to start.
So I think really after this fewmonths of trade war, United
States certainly has treated China as that sense of
undisputed equal. So I think that's what China
want and I think that's what Doctor Doctor GAO was saying
about regarding the respect. I think it's that respect
element what they have as of today.

(08:22):
Victor GAO, you've been quite rude about America and its
intentions in the trade war, butDonald Trump has been nothing
but polite about your leader, XiJinping.
You called him a strong leader, a great leader.
Why doesn't Xi Jinping return the compliment?
Why don't you return the compliment?
I always have the highest respect for the American people

(08:45):
and for the ingenuity and the creativity of the United States
as a nation. Now, sometimes I'm critical of
President Trump and his trade policies.
That doesn't mean that Victor GAO has any lack of respect for
the American people. Now for President Trump, while I
applaud the fact that he used the nice words, present words
about China against for President Xi Jinping, we always

(09:09):
need to watch whatever he walks and we cannot purely depend on
whatever he talks. Therefore, this is the time to
see whether he talks to talk andwalks the walk.
And this will be the litmus test, I think.
And my concern is that the greatest predictability in the
world of today is the unpredictable unpredictability

(09:32):
of the United States, and the greatest certainty in the world
of today is the uncertainty of the United States and
unfortunately, President Trump. There are many things that
Americans admire about China. You know, I myself was
travelling through China for quite a long time in 1981 when
it was a very, very different country.

(09:52):
And as I've seen the extraordinary transformation of
China, it is, it's, it's mind blowing, literally, it's
extraordinary. I wonder what you, Victor GAO,
admire about America. Well, I have the highest
admiration you can think about for the American people for
their creativity, resourcefulness, as well As for

(10:13):
their great natural endowment and very unmatched geopolitical
positions in the northern parts of the United States.
And I think whatever China is doing is trying its best to make
the United States love peace more rather than try to resolve
to war to solve any problem between any other with any other

(10:36):
country. This is why China never looks
down on the United States and China always wants to engage
with the United States as an equal partner.
And we truly believe that if China and the United States can
this can set their sights of thesame major issue in the world,
there will be nothing in this world which cannot be resolved

(10:57):
for our mutual benefits as well As for the benefit of mankind as
a whole. Jujia, I mean, Viktor Gal loves
to talk about, you know, the China and peace and how it's a
peace loving country that wants to spread peace around the
world. But when you look at China's
military buildup, which is also extraordinary, especially it's
naval build up in the region, what is what story does that

(11:19):
tell you? Well, there's a plenty of
stories in here. I think for for the first layer
is really that sense of China's obsession regarding neighboring
countries because this is the country's share border with a 14
different countries and obviously having secure border
and to couple to be paired with the modern army and I think
that's absolutely necessary. Now secondly, I think also given

(11:43):
Chinese foreign policies obsession towards sovereignty
and territorial integrity. So when they come to issues
related to Taiwan and when they come to issues ready to solve
China Sea of course and China will show a very assertive
stance on that. So I think it's just the the way
how the Chinese foreign policy and also the military contact as
operate as it is today. And of course, I think for many

(12:06):
and particularly among the G7 countries when I look this and
they would consider this probably bring more fear than
admiration regarding China's military capability.
What do you think? What do you think China wants to
do with its military capability?What's the end goal here, Gigi?
Well. The end goal is really about the

(12:26):
deterrence to win the war without fighting.
I mean, if we come back to a month ago was that gigantic
military parade to be put forward at Tiananmen Square?
And one thing has been quite clear is that the message has
been clear there and that China does have the capability when
they come to the military competition.
Was United States always the others?

(12:47):
However, whether China decided to use it, that's an entirely
different matter. Victor GAO is Is that this
parade of military hardware thatwe saw in Beijing, you know, is
the language that comes out of your leader, Xi Jinping?
Is that about respect? Is it about fear?
Is it about domination in the region?
What's it about? Well, the victory parade on

(13:10):
September the third has only onepurpose, that is to defend
China's sovereignty and nationalterritorial integrity and to
make the United States and the American people love peace more
than what they used to. And this is the only purpose.
China's National Defence is not a measure up against any of our
neighboring countries. It is a measuring up against

(13:33):
only one country. That is the United States.
And the only purpose of measuring up against the United
States is to make sure that the United States will love peace
and will no longer be happy to move to the gum and shoot from
the hip, especially not vis A vis China.
That's the only purpose. But hang on a minute, Victor.

(13:55):
It is Chinese components that allow you, you know, the
Russians to fire missiles and drones into Ukraine.
China could stop the war in Ukraine today if Xi Jinping
picked up the phone to Vladimir Putin and said, you know, we can
be the best of friends, but you cannot wage this war.
He has refused to do that. He has met Vladimir Putin

(14:17):
together with the North Korean leader at that parade on the 3rd
of September. I mean, these are not exactly
peace loving signals, are they? You are wrong with due respect.
If China supplies weapons to theRussian side, Russia would have
won the war overnight. For example, China has this
monster lethal anti drone weaponand system which can shoot down

(14:43):
any or any group of drones en masse.
And this is exactly what the Russians would need because
drones launched and used by the Ukrainians have done havoc
against the Russia not only inside the Ukraine but deep
inside the Russia. This is ample proof to show that
China does not supply weapons toeither Russia or Ukraine.

(15:07):
And if China supplies weapon to either side, that side receiving
China weapon will win the war immediately.
Juju is any of that right? Well, I think regarding the
Russia, Ukraine and China, and that's an entire separate
question, but what we can reallyjudging from the meeting what we

(15:28):
had today, I think President Trump even mentioned that was
much hoping that can work together with China to resolve
this war in Ukraine related matters.
So let's see whether the G2, theframework which we just had this
morning, we'll be able to solve the Ukraine Russia issue for
now. But I think at the moment we
have seen a lot of words floating around and very little

(15:51):
deeds that how much, firstly Washington get involved and
secondly, how much Beijing wouldlike to get involved on European
security architecture. But but if China was not
providing the kind of non overtly non military aid to
Russia that it's been providing,you know, for the last two years
or 2 1/2 years of the war, do you think that Russia would not

(16:12):
be able to conduct this war as it has done so far?
Well, I think weapon is one thing, but another element in
here is this regular trade between China and Russia and
also the the volumes of trade and that Beijing has purchased
from Russia that somehow give the bloodline of the to running

(16:33):
the economy. So it's less about the weapon,
but I think it's more about the trading relationship that
Beijing has offered to Russia right now that seems to putting
under the scope being further examined.
But to go why is Xi Jinping so friendly with Kim Jong Un of
North Korea and Vladimir Putin of Russia?
I mean, if he is this great, amazing world leader as Trump

(16:56):
has described him, surely he should be keeping a different
kind of company. Well, for the record, China and
DPRK have the only blood treaty between China and any other
country. That means after the end of the
Korean War, China and DPRK have signed mutual defence treaty

(17:17):
whereby each side will need to come to the other side's defence
if the other side is attacked. Now this treaty is automatically
renewable after 20 years and it has never been terminated.
That means between China and DPRK we do have this time
honoured mutual defence treaty and China only has this defence

(17:40):
treaty with DPRK, not with any other country.
That means if any country wants to second guess China's
determination to come to DPRK's aid if DPRK is attacked
militarily, then please read thenational and the mutual defence
treaty between China and DPRK. Now between China and Russia, we

(18:02):
engage in normal trade with eachother.
China will never allow any othercountry to disapprove or to
disqualify China from engaging with any other country,
including Russia, in normal trade relations unless it is
being blocked by the United Nations Security Council.
That is the only litmus test. China does not allow any

(18:25):
sanction imposed by any other country except the sanctions
blessed by the United Nations Security Council.
I want to talk about nuclear weapons and nuclear testing a
little bit, if I may. Donald Trump actually, to many
people's surprise, also announced today on his way back
to Washington that he wants to resume nuclear testing

(18:46):
immediately after having not done so for 33 years.
Now, what does Beijing make of that statement?
Well, Beijing's policy about nuclear weapons and use of
nuclear weapons and non use of nuclear weapons against non
nuclear weapon countries or nuclear weapon free zones is

(19:07):
well recorded. China will never use nuclear
weapons against any other country ahead of time.
And China will never allow any other country which uses nuclear
weapon against China to survive China's nuclear retaliation.
That means China has built up MAD capabilities to deter any

(19:28):
country in the world which may be MAD enough to strike China
with nuclear weapons. China will never do this kind of
thing against any other country,but China will never allow that
nuclear power to strike China first to survive China's brutal,
ruthless nuclear retaliation. I hope President Trump will get
that message. And I hope the United States

(19:50):
will never ponder the possibility of using nuclear
weapon against China because that will trigger immediate
nuclear annihilation of the United States by the Chinese
retaliation. I mean, the Americans have not
even dropped the slightest hint that they might want to target
anyone with nuclear weapons, letalone China.

(20:10):
So. So why are you so robust in your
language? No, it's not.
My language is robust. It is.
China's position is as robust asyou can expect.
China will not attack any country first with nuclear
weapons, but China will never allow any nuclear power which
strikes China first with nuclearweapon to survive China's

(20:34):
nuclear retaliation period. That's robustness you may be
calling for. And just briefly on this, do you
think that China will now also resume testing of nuclear
weapons? China has never stopped nuclear
testing. China's nuclear stockpile is a
fraction of that of the United States or Russia.
But China's position is very clear.

(20:56):
China will have enough nuclear warheads after the first nuclear
strike by any nuclear power to make sure that that nuclear
power which strikes China first will be annihilated by nuclear
weapon. That is Armageddon, period.
I think, yeah, I'd just like to adding on on this element in

(21:18):
here. So while we're talking about the
PRK, while we're talking about China and we also talk about
Russia and Moscow earlier, I think one of the biggest worry
Beijing would have right now at this moment is that a close ties
between the DPRK and Russia is does not serve China's interests
very well. Now having both surrounded by
nuclear neighbors and China's policy obviously is do not root

(21:42):
out the first by not using the nuclear.
However, I think these things need to be said that what Russia
and DPRK has been doing is not something at Beijing's best
interest at the moment. OK, let's move on to, I want to
get back to the, you know, the, the trade relationship between
America and China, which is, youknow, at the heart of the

(22:03):
meeting that we had today. And, and I just wonder, Victor
GAO, whether you think at the end of the day, you know,
American China can find some kind of mutual understanding
where they both, you know, produce high end goods when it
comes to, you know, artificial intelligence.
You know, they both produce electric vehicles.

(22:23):
You know, they help each other on things like climate change.
Or do you think that the competition between these two
great powers is so intense that actually, whatever anyone says,
we are slowly moving towards some kind of confrontation?
No, I don't think so. I think about the end of the
day, I truly believe in the inevitability of peace between

(22:45):
China and the United States. I'm a complete opposer to the
so-called destined for war scenario between China and the
United States. Allow me to use soybean as an
example. China has the biggest demand for
soybean and if the United Stateswants to wait tariff war against
China, then China will not buy asingle item of soybean to the

(23:07):
great detriment of the soybean growers in the United States.
That means the United States should give up any idea of
weaponizing tariff against Chinabecause otherwise China will
retaliate. China will be ready to see
complete winding down to zero ofthe two way trading goods If the
United States wants to weaponizetariff.

(23:28):
That is the bottom line. China wants to engage with the
United States. China wants to buy as much
soybean as the American farmers can grow and China's the only
biggest market for soybean amazingly.
Therefore, President Trump should really think about the
well-being of the American farmers before he even thinks
about the crazy idea of launching tariff war against

(23:51):
China. We should go back to square one.
That means China and the United States don't weaponize tariff
against each other. That is the better way between
China and the United States. Right.
But what about Chinese factories?
You have a manufacturing bubble.You know, you after your
property bubble burst, you put all your assets and all your

(24:12):
investment into manufacturing. You want to become, you know,
the, the world's, you know, single most important
manufacturing power and you're brilliant at it.
But you need to sell the stuff that you make.
And you can't sell all of it to China or even to Southeast Asia
or to Europe. You're going to have to sell a
lot of it to America. So that is where the Americans
have a stranglehold over you, don't they?

(24:34):
Because if you don't sell the stuff, your factories go bust
and your workers get very unhappy.
With due respect, I completely disagree with you, Sir.
Why? Because the United States has
been calling for decoupling for at least seven or eight years.
Do you think China will not prepare for that extreme
situation? China's fully prepared if the

(24:56):
United States really wants to decouple from China, meaning
there will be no more trade between China and the United
States, if that's what the United States wants to see, and
China will be fully prepared. Do you know what we are talking
about now? We are talking about landing
persons on the moon ahead of anyother country.
We are talking about fusion technology to generate power

(25:18):
without limit and bringing the benefits to the 8 billion people
in the world. We are talking about deep space,
deep sea. We are talking about everything
to be enabled by AI. We are not not talking about
producing toys or garments or textiles or shoes anymore.
We are talking really about the cutting edge technology, the

(25:40):
breakthrough that mankind can think about.
That will be the stabilizing factor for the Chinese economic
growth. I don't think there is any other
country in the world which is sofocused on what we call new
qualitative productivity, which is a tongue twister, but which
means you generate productivity through technological

(26:03):
breakthroughs. That's what China is focused
upon now, all. Right.
Do you? Do you buy?
Do you buy what Victor is selling?
Just to putting this the not thetongue twister, but the new
terms on the economic terms thatBeijing has defined.
Putting it aside, I think what we have seen so far really again

(26:24):
judging from the readouts we have from both and today is
actually United States has promising to invested more in
China. And that is actually not
reducing the dependency, but actually increasing the
dependency between China and United States.
And if we're talking about market behaviour and what United
States been asking, asking Chinato purchasing extra soya beans,

(26:46):
that is actually a market distortion that is not actually
something that follow the marketeconomy.
So whether China's willing to dothat, that is up to Beijing to
decide. On one hand.
Then I think on the other hand, Beijing has already learned from
the sense of unpredictability and also the the economic
behaviour that's set up by the Trump administration.
So what Beijing has decided is not to putting all the eggs in

(27:09):
one basket. I think equally United States is
playing on a similar strategy inhere, do not overlay dependent
on China and like likewise I think European Union does the
same thing. So I think what we have right
now is every single country, major economies in the world,
they all become so inward looking and it has LED into the
situation where we are today. So it's less of the dependency,

(27:31):
but it's more about setting the forgeries and how can I protect
oneself. OK.
Just finally, I want to spend a minute or two talking about
Taiwan. First, you Juja Taiwan, as far
as I can gather, didn't come up at all in the meeting.
Certainly there was nothing in the official readout about
Taiwan. Does that surprise you?

(27:52):
No, it's not surprising me at all.
I think really judging from the the results and also judging
from the mood was United States that obviously Taiwan is a
major, major issue between the two.
And then that's probably the fundamental agreement between
the Beijing and the United States back to 1979 when they
formally established diplomatic relations.

(28:12):
So I think any major changes regarding Taiwan, firstly that
would require to have some at least foundational level of
trust between Beijing and Washington.
And moment I do not see that trust actually exist.
And secondly, they are China Hawks around the Trump
administration and WHO deliberately looking for changes

(28:33):
in status towards Taiwan. So I think really for Donald
Trump himself, and he's not really willing to make a very
bold move for that. But you got a final question to
you. Do you think if you if your
government were to encroach on Taiwan militarily, either
through a naval blockade or an invasion, and we know that Xi
Jinping is on the record for saying that he wants Taiwan to

(28:55):
be reunified, as you put it, with the motherland at some
stage before he leaves office. Do you think that President
Trump, should he be in the WhiteHouse at the time, will sit by
and do nothing, or will he intervene and use American power
to stop you? First of all, let's be honest,
the real status of the relationsacross the two sides of the

(29:17):
Taiwan Strait is the unfinished civil war back in 1949.
So if China really moves to achieve unification or
liberation of Taiwan, it is the resurrection of the unfinished
civil war. Do you really think the United
States or President Trump or anyone else in the White House
want to be involved in the civilwar between the two sides of the
Taiwan Strait? That's number one.

(29:39):
I'm completely ruling that option out on the table.
Secondly, the status of Taiwan being part of China is carving
stone in the Cairo Declaration and the Boston Proclamation.
No one can change that. Whether you want to try that or
not, that's another matter. But you can never change the
final verdict of history in the Cairo Declaration and the Boston

(30:01):
Proclamation, meaning China's completely on the right side of
history. If we want to have another civil
war to finish the unfinished civil war back in 1949, that's
China's internal matter. Taiwan will be liberated by
peaceful means preferably, or bya resurrected civil war if it is

(30:22):
necessary. But you don't.
Want to be liberated, Victor Gow.
They don't want to be liberated.They quite like living in their
own country. The majority of Tiny do not want
to be part of the People's Republic of China.
Well, the people in the Confederation did not want to
join the Union, but President Lincoln decided otherwise.
President Lincoln decided to bring them back to the Union

(30:43):
with force if it is necessary. And this is exactly what the
Union did against the Confederation.
And that is the only logical conclusion for the relations
between the Federation on the one side and the Confederation
on the other side. The Confederation was defeated
and now they are very much part of the Union.
And the United States after the Civil War has been one nation

(31:08):
under God, indivisible. That is the truth of the United
States. It will be the truth for China
too. One day when China is reunited,
you will see China will never bedivisible and no one can ever
dare to split any part of China away from China.
Very quick one to you Jujo, to finish the podcast.

(31:30):
In how many years from now do you expect Beijing to make a
move on Taiwan? Well, I think we have the second
Centennial goal. So at some .2049 we have been
reserved one way or another. Let me put in here.
That's that's quite a long time frame, I think.
I think Xi Jinping would like tobe done sooner rather than

(31:51):
later. Thanks very much to both of you.
Victor GAO, who stayed up late for us in Beijing, thank you
very much indeed. And Doctor Zhujia, Dr. GAO and
Doctor Zhujia in London, thanks to you as well.
That's it for this episode of THE Forecast.
Until next time, goodbye.