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US-China Ties in the Shadow of the Mueller Investigation

Politics / US Politics Jun 12, 2017 - 05:39 PM GMT

By: Dan_Steinbock

Politics In the foreseeable future, the Trump administration will be constrained by the special counsel’s Russia investigation. How will it impact the White House’s relations with China?

It was a strange month. First, the Department of Justice (DOJ) dismissed James Comey, Director of the Federal Bureau of Investigation (FBI), who the center-right Democrats blame for Hillary Clinton’s 2016 electoral loss. In turn, the center-left Sanders-supporters attribute the loss to Hillary Clinton’s gross abuse of public office and funds, Bill Clinton’s corrupt Global Initiative, collusion with the Democratic Leadership Committee (DLC) and mainstream media.



Barely a week later, the DOJ appointed Robert Mueller, former director of the FBI (2001-13), as special counsel overseeing the investigation into Russian interference in the 2016 elections. Meanwhile, Hillary Clinton claimed she was “right” about the “vast Russia conspiracy.”

Of course, there is little doubt about the ultimate outcome of the Mueller investigation. He served loyally under President George W. Bush and Vice President Dick Cheney. So from the Trump White House perspective, the end is pretty much known. It is the process that has potential to undermine his presidency.

But what will happen to Trump’s ties with China as White House begins its fight for political survival? The short answer is that those areas of the Trump agenda that require legislation (e.g., tax reforms) will remain more vulnerable to direct and indirect constraints associated with the Mueller investigation. In contrast, those areas of his agenda, which can be implemented mainly through executive action (e.g., trade policy), will be less exposed to such constraints. Finally, those areas of the agenda that are somewhere between executive and legislative action may prove easier to implement as well (e.g., sanctions).

Commercial ties with China

During the 2016 campaign, Trump threatened to use high import tariffs against nations that have a significant trade surplus with the US, particularly China ($347 billion), Japan ($69 billion), Germany ($65 billion), Mexico ($63 billion), and Canada ($11 billion). Nevertheless, trade pragmatism prevailed in the Mar-a-Lago meeting, where Trump and President Xi Jinping announced a 100-day plan to improve strained trade ties and boost cooperation between two nations. But if the plan cannot offer major breakthroughs after the summer, trade hawks may return and deficit rhetoric could escalate toward the year-end.

Right after his inauguration day, just as he had pledged, President Trump used executive order to pull out of the Trans-Pacific Partnership (TPP), President Obama’s legacy deal. In his campaign, Trump had promised to renegotiate key US free trade agreements, including the North American Free Trade Agreement (NAFTA). Indeed, as trade policy relies mainly on executive action, the administration may try to renegotiate deals rather than to reject them, if only to minimize the downside risk.

The positive spin has already been introduced. As US Trade Representative, Robert Lighthizer, puts it, the administration will not seek to "overturn" NAFTA trade but to “expand” it. NAFTA renegotiations are set to start soon. When the talks begin after mid-August, they will be followed closely by other bilateral trade agreements that will soon be on the table (South Korea, Japan, and Taiwan). Since negotiations are likely to endure through the fall, major trade friction that would undermine global growth prospects may not be likely until 2018.

The proposed tax reforms are a different story. Mueller’s investigation is likely to overshadow Trump efforts at tax overhaul, which relies on legislative consensus and the perceived strength of the Trump administration. Yet, legislative support will be challenging in the current conditions, and the administration’s staying power is now subject to both counsel’s investigation and political speculation.

Moreover, even if the Trump plan could reduce US corporate rates significantly, that might not be adequate to “reshore” US companies' overseas profits and corporate operations. There has been no major outflux of foreign firms from large emerging economies, which offer 3-4 times faster growth than the US or Europe.

Fiscal policy requires consensus among the Senate, House and Executive branch of the government, which are internally divided and externally under extensive scrutiny. In the long run, inadequate fiscal support could undermine Trump's huge $1 trillion infrastructure initiative, affecting the dollar and import growth – and thus the Chinese renminbi, Chinese exports and investment.

Strategic ties with China

Recently, a US Navy destroyer sailed close to a disputed South China Sea island controlled by China. It was the first time under President Trump. Intriguingly, USS Dewey’s “freedom of navigation” (FON) operations were timed right after China and ASEAN agreed to draft a code of conduct in the South China, which has potential to reduce the risk of military clashes in one of the world’s busiest waterways.

As Trump hopes to launch a Reagan-style military rearmament program, some observers expect him to push assertive military measures around the world. However, they may ignore the fact that the “America First” program is focused on domestic priorities, as evidenced by Trump’s tougher stance against German trade surpluses and EU members’ “free riding” behind the US-funded NATO.

Since sanctions and other economic coercive measures fall under executive actions, Trump’s strategic maneuverability is less restricted in these areas. Then again, both Republican neoconservatives and Democratic liberal internationalists support sanctions against North Korea, and, with some qualifications, against Iran.

North Korea’s nuclear blackmail is strongly opposed by the White House and objectionable in Beijing as well. In the case of Russia, sanctions will prevail and possibly broaden. Trump's reset efforts are likely to remain frozen through the special counsel’s investigation and more challenging to implement after that investigation. In the case of Iran, Trump is likely to push sanctions outside the nuclear deal as far as possible, which will be cheered by Iran’s hardliners who oppose the recently re-elected moderate President Hassan Rouhani.

Nevertheless, Trump’s hard stance is in line with his rearmament program and closer ties with the Gulf Cooperation Council, Israel and particularly Saudi Arabia with which he recently signed a huge $110 billion weapons deal.

The Pandora’s Box

As far as the White House is concerned, the Mueller investigation may well undermine Trump’s most ambitious strategic goal: the Russia reset. As he pledged in 2016, Trump has sought, publicly and privately, an anti-terrorism coalition with President Putin. At each stage of the talks, the mainstream media’s “Russiagate” narrative — allegations that Trump himself or his “associates” have been treasonously compromised by the Kremlin, and for which no actual evidence has yet been produced — “has intervened in ways that jeopardize, if not sabotage, the diplomatic process,” as veteran Russia expert Stephen F. Cohen has noted.

Seeking to revive his stalled policy agenda in Congress, Trump is developing his “war room” within the White House to combat leaks, disclosures and the investigation about his associates and Russia. That means the return of his toughest and most confrontational campaign aides, including former campaign manager Corey Lewandowski, deputy manager David N. Bossie and, of course, chief strategist Stephen K. Bannon, his rough radical-right champion.

If necessary, the war room could go offensive. Since the 1990s, Bossie has used the darkest Clinton controversies to battle both Bill and Hillary Clinton and, when warranted, could resort to the controversial “nuclear card,” which rests on the controversial Wikileaks disclosures and associated testimonies, to steer public spotlight toward the gross abuse of public funds by the Clintons, Democratic leadership, and the 2016 deaths of Democratic operatives who were hoping to testify against such abuses and corruption before their odd deaths (including Seth Rich, Shawn Lucas, John Ashe and Victor Thorn).

Historically, the appointment of special counsel has often been accompanied by unintended consequences and collateral damage. The Mueller investigation is not likely to be an exception. When necessary, Trump’s war room will resort to offensive actions that will drag into the daylight the darker side of the Democratic leadership. As a result, America’s international clout, which has eroded almost two decades, may suffer new, more extensive, even irreparable harm.

Since the Mueller investigation is likely to slow down those parts of the Trump agenda that require legislative support, it may well steer the administration’s interest toward bold, executive actions. As long as the White House and Beijing can concentrate on cooperation, the constrained focus could take the bilateral ties on a new, broader level faster than anticipated. However, if cooperative benefits are seen as inadequate in the White House, Beijing or both, the result could be a challenging lose-lose scenario. Consequently, failure in US-Chinese talks is not an option.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

The original, slightly shorter version was published by South China Morning Post on February 28, 2017

© 2017 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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