◎ The CCP does not want a trade deal on Trump’s terms to begin with because such a deal would cause existential problems for the communist regime.

Michael Pillsbury, a Hudson Institute senior fellow and external advisor on China to United States President Donald Trump, made several noteworthy points on the Sino-U.S. trade war in an interview with Fox Business News on Sept. 16.

According to Pillsbury:

Trump wants a “monumental trade deal” with China. “He’s called it the ‘granddaddy of all trade deals’,” Pillsbury said.

Pillsbury said that Trump “very wisely put the Hong Kong issue into the trade talks.” And with China publishing bad economic data, “this puts Xi Jinping in a box in terms of choosing which way to go.” He added, “I have a hunch, things quiet down in Hong Kong, the trade talks will be successful, and it will be what the President calls the granddaddy of them all deals.”

Pillsbury believes that the Chinese are “a little bit confused” because they think that Steve Bannon, John Bolton, and the Committee of the Present Danger: China speak for President Trump. “I don’t think that’s true. Steve Bannon’s group, the Committee of the Present Danger: China, wants to overthrow the Chinese Communist Party … In Beijing, people are telling President Xi that the Americans really want to destroy [their] system of government, look at what Bannon and Bolton say … I think that the President [Trump] does not agree with Bannon and Bolton on China’s future.”

Pillsbury alluded that one purpose of his coming trip to Hong Kong and Beijing is to clarify that Bannon, Bolton, and “their friends outside” do not speak for President Trump.

When asked if Trump will separate the trade talks into trade and national security tracks, Pillsbury said that Trump is “focused on a monumental trade deal.” The trade deal is a “campaign promise,” separates Trump from the 2020 Democrat presidential candidates, and is “very important for 2020.”

When asked if a deal can be reached before the year’s end, Pillsbury said that “the chances are good, yes.” Trump is a “great negotiator, he’s got a lot more escalatory steps he can take, the Chinese are vulnerable. The key thing is whether the Chinese view of President Trump is that Bolton and Bannon speak for him, in which case they don’t want to make a deal.” he added.

The backdrop:

In the week of September 9, both the People’s Republic of China and the United States made moves to dial down trade tensions, including delaying tariffs scheduled for Oct. 1 (U.S.), exempting agricultural goods from tariffs (PRC), and making large purchases of soybeans (PRC).

On Sept. 10, Trump tweeted that he had asked for John Bolton’s resignation the night before. Bolton is no longer serving as U.S. National Security Advisor. Various news reports say that Trump and Bolton fell out over the handling of issues in the Middle East.

Our take:

1. Michael Pillsbury says that Steve Bannon, John Bolton, and “their friends outside” (presumably members of the Committee of the Present Danger: China and others who view the CCP as a legitimate threat to the U.S. and the world) do not speak for President Trump. Given that Pillsbury is Trump’s informal advisor on China, it would be safe to presume that his views are at least somewhat representative of the thinking in the White House. And if Pillsbury’s remarks to Fox Business on Sept. 16 are not too dissimilar to Trump’s, then the CCP has already stolen a march on the U.S. in the Sino-U.S. “Battle of Waterloo” and is now the side with momentum.

2. In May, we wrote that the CCP is “exploiting Trump’s attachment to an ‘epic deal’ to buy itself time to ensure regime survival and further its agenda of world domination.” Through delaying tactics, i.e. dragging out trade negotiations and the full implementation of the agreement if one is reached, the CCP will ultimately give Trump an “empty victory” in the trade war and affect his 2020 re-election bid.

In August, we wrote that the CCP’s “advancing to retreat” strategy has led the U.S. to find ways to compromise with the CCP to prevent a Tiananmen-style crackdown in Hong Kong. Part of the compromise could involve swaying the Trump administration to marginalize hawkish U.S. voices on China and curb their “influence” over the administration as quid pro quo for not cracking down on Hong Kong and genuine progress on the trade deal.

Michael Pillsbury’s remarks on Sept. 16 suggest that the quid pro quo which we described above had likely been reached. There are several reasons why such a quid pro quo does not benefit the United States.

First, the CCP does not want a trade deal on Trump’s terms to begin with because such a deal would cause existential problems for the communist regime. In fact, the CCP would rather partially “close up” China (we observed signs of preparation in January 2019; see here and here), tolerate poor economic growth, and let millions die to retain its control over China then carry out regime-threatening structural reforms. The partial closing up of China, however, is almost certainly a last-ditch measure. In the interim, the CCP still has an interest in continuing negotiations with the U.S. as a strategic measure to outlast and defeat the Trump presidency and avoid having to implement extreme measures to survive long-term “strategic competition” with the United States. The U.S. should weigh all quid pro quos with the PRC against the above backdrop.

Second, the CCP regime has reneged on formal and informal agreements time and time again. There is no reason to believe that it would fully honor any agreement. The ability of any CCP leadership to follow through on deals is further complicated by “you die, I live” factional struggles in the elite ranks of the Party.

Third, if the “China hawks” in Trump’s cabinet whom Beijing has singled out for strong criticism are ousted before a trade deal is signed, then the U.S. would at once become more vulnerable to the CCP and would be placed at a distinct disadvantage in its long-term “strategic competition” with the PRC. Such a scenario would be ironic for the Trump administration because the idea of reaching a tough trade deal with the PRC, aside from leveling the playing field and reducing the trade deficit, is to rein in the CCP’s pernicious behavior and make the U.S. more robust to the CCP threat.

3. A classic CCP strategy for controlling the masses and weakening enemies is “inciting the masses to struggle against each other” (群衆鬥群衆). For instance, the CCP will deliberately to “praise” one segment of an enemy population while “damning” another portion to create disunity in society. When the different segments begin to bicker amongst themselves and society becomes fractured, it will be more susceptible to CCP influence operations and become less effective in confronting the CCP threat.

Michael Pillsbury could only be seeking to clarify that some public individuals who are outspoken on the CCP do not represent the Trump administration’s views lest “confused” Chinese officials misunderstand the situation. Given the CCP’s 群衆鬥群衆 strategy, however, it is more likely that the Chinese officials are purposely acting “confused” to manipulate the Trump administration into marginalizing anti-CCP voices in exchange for greater progress in trade negotiations and the eventual signing of a “monumental deal.” The sidelining of anti-CCP voices, however, will only serve to widen the split in American society on China at a time when the country needs to form a consensus on addressing the CCP threat.

4. To regain the trade war initiative, the Trump administration can consider the following moves:

Start a national conversation to forge a consensus on the China issue. The Trump administration must explain clearly to the American people why it needs to wage a trade and tech war with China, why the U.S. could escalate the trade and tech while broadening “strategic competition” with the PRC to other areas, and why the American people will have to make some economic sacrifices and bear other costs in confronting the existential CCP threat.

Immediately impose tariffs on all Chinese products and keep them in place until a trade deal is signed. Tariffs will only be removed stage by stage after the PRC has fulfilled commitments outlined in the trade agreement to U.S. standards. The U.S. will unilaterally impose tariffs again should the PRC renege on its commitments.

Implement novel strategies to mitigate the economic, social, and political costs of a “maximum pressure” campaign against the PRC, and avoid a “clash of civilizations.”

Get smart:

For the Trump administration, getting a trade deal with China is the fulfillment of a campaign promise and an end to itself. For the CCP, negotiating and signing a trade deal are merely means to an end, that is, ensuring that President Trump does not get a second term in 2020.

The United States and China may or may not reach some sort of trade deal this year or before the 2020 U.S. presidential election. Regardless, a Sino-U.S. trade agreement does not mean the end of “strategic competition” between the two countries. Businesses, investors, and governments must filter out signal from the noise of “progress” or “backsliding” in the trade talks, and plan for long-term competition between the U.S. and the PRC.