Why the Trump Xi Summit Was Always Going to Fail!

TL;DR

The Trump-Xi summit cannot solve the trade imbalance because it's an accounting problem driven by domestic savings policy, not a political one.

Key Points

• 1.The trade war escalated to historic tariff levels before a fragile truce. The US imposed 145% tariffs on Chinese goods; China retaliated with 125% plus rare earth export restrictions, before both sides agreed to a 90-day truce expiring in November.
• 2.The summit's ambitions are embarrassingly low, dubbed the 'Beans and Boeing Summit.' Both leaders arrive under domestic stress — China faces a collapsing property sector, youth unemployment, and demographic decline; Trump faces 34% approval ratings and midterm elections in November.
• 3.Trade imbalances are an accounting problem, not a political one, per Michael Pettis. China's financial repression — suppressing household income via low savings rates, undervalued currency, and weak labor protections — forces up national savings and exports the surplus abroad automatically.
• 4.China systematically produces more than it consumes and imports almost nothing. FT journalist Robin Harding found Chinese economists believe they can make everything better and cheaper domestically; import volumes are 'comparatively anemic' compared to the export-driven first China shock of the 2000s.
• 5.The US is structurally forced to run trade deficits by surplus countries' capital flows. When China and Germany's excess savings flood US financial markets, a corresponding trade deficit is a balance-of-payments identity — not a choice — making the US the global consumer of last resort.
• 6.Trump's primary negotiating tool, tariffs, has been struck down twice by US courts. The Supreme Court invalidated his IIPA tariffs; a federal trade court then ruled his Section 122 tariffs illegal; a third set under Section 301 won't be ready until summer, leaving him largely disarmed.
• 7.The summit's deliverables — a 'Board of Trade' — recycle a failed approach. China missed purchase commitments from the 2020 Phase 1 deal; the proposed monitoring committee is essentially a solution to China not honoring commitments by creating a new committee to watch for the same thing.
• 8.The structural fix — shifting China to consumption-led growth — is politically toxic and historically ignored. Keynes proposed a system at Bretton Woods penalizing persistent surpluses and deficits; the US rejected it then, and neither side today shows willingness to make the domestic policy changes required.