This Week in Geopolitics

US-China Trade Talks Collapse and It’s North Korea’s Fault

July 24, 2017

Before we begin…

A brief reminder that the Geopolitical Futures’ Global Investor Package will come offline at midnight tonight, July 24. After that, the package will not be available anywhere.  

But if you take this opportunity today, you will join the highly exclusive club of people with access to Geopolitical Futures’ newest report, A Portfolio of Countries: Using Geopolitical Knowledge to Shape Your Long-Term Investing Strategy… get instant access to the Geopolitical Futures archive of analysis and insight, as well as a one-year subscription to everything we publish… and claim a copy of George Friedman’s New York Times bestseller, The Next 100 Years.

Don’t miss out on this masterclass in geopolitical insight, philosophy, and forecasting—get your Global Investor Package now.

* * * * * *

The United States and China met to discuss trade issues. The meeting ended without agreement on anything. The obligatory joint press conference after the talks, where everyone pretends that everything was fine, was canceled. The only comment came from a U.S. official who said there were frank discussions, which means that the talks were tough and full of threats.

At the beginning of Donald Trump’s presidency, GPF expected that these kinds of confrontations would take place. But both countries put aside their disagreements to deal with another overriding issue: North Korea’s nuclear program. The issue emerged shortly after Trump’s inauguration, when it became apparent that North Korea was moving aggressively to develop a nuclear delivery capability. After analyzing the military reality, the United States was reluctant to launch a strike against North Korea and instead pursued negotiations.

During Chinese President Xi Jinping’s visit to the United States in April, discussions between Xi and Trump turned from trade and related policies to the question of North Korea. Over the years, the United States had relied on the Chinese to act as an intermediary and restrain North Korea. Trump asked Xi to play that role again, offering to reward China for its cooperation by softening the U.S. negotiating position on trade. We know that this happened because of various leaks, because of the lack of further confrontation over trade and because Trump tweeted that China’s help on North Korea would lead to a better deal for China.

But China has clearly failed to persuade North Korea to halt its nuclear program. There are two possible explanations for this. The first is that North Korea doesn’t trust China but does trust that having a nuclear weapon would block any American attempts to destabilize the North Korean regime. The second possible explanation is that China did not want to persuade North Korea this time. The reason is simple: Although China cares a great deal about trade, it cares much more right now about its geopolitical balance with the United States. North Korea has the United States on a hook. If the U.S. chooses not to attack North Korea, it would appear weak, and China would in turn look stronger. And if the U.S. chooses to attack, it could be portrayed as a lawless aggressor. In a full-scale attack, the U.S. would likely take out North Korea’s nuclear program, and China would be spared that problem. China would then claim that it had been busy mediating, and had nearly reached a deal, when the American cowboys struck.

This posturing matters a great deal to Beijing. China depends on maritime trade, and it requires easy passage through the South and East China seas to access the ocean. But the seas are riddled with small islands, and the U.S. Navy can easily block China’s access. With a navy that is in no position to challenge the U.S. at sea, China is left vulnerable to a potential blockade. Its best strategy is to convince one of the countries in the region, like the Philippines or Indonesia, to align with it to allow free passage. This strategy may be a long shot, but it matters greatly to China. The perception of U.S. weakness or recklessness on North Korea might cause some movement in these countries. And even if it doesn’t, either an attack or a failure to attack would create political problems for the U.S. in the region.

I believe that some variant of the second explanation was behind China’s failure to move North Korea. But the lack of results on this issue meant that trade, having been put on the back burner since the Trump-Xi summit, was now back at the forefront. The U.S. no longer had any reason to go easy on China, and China was not prepared to cave. This is both because the Chinese are good negotiators who play a weak position extremely well, and because the Chinese are trying to understand how Trump’s weak political position will intersect with trade talks.

The trade issue is a perfect example of how economic, military and political positions are inseparable in real life. Nations do not bargain on economic matters in a vacuum. In this case, the trade issue was bound up with possible war in North Korea as well as domestic U.S. politics. To fully understand the trade issue, you can’t examine trade on its own. And this is a great example of how these things intersect, but it’s far from a unique one. In international relations, all dimensions intersect and become part of a single fabric.

And finally…

Don’t forget—if you want to learn how to apply the methods of Geopolitical Futures and Warren Buffett to your own investing strategy, this is your last chance.

Get your Global Investor Package today for just $314.95 $99.

George Friedman
George Friedman

 

Prepare Yourself for Tomorrow with George Friedman’s
This Week in Geopolitics

Geopolitical Futures To learn more about George Friedman and Geopolitical Futures, click here. »


Discuss This

We welcome your comments. Please comply with our Community Rules.

Comments

There are no comments at this time.


Use of this content, the Mauldin Economics website, and related sites and applications is provided under the Mauldin Economics Terms & Conditions of Use.

Unauthorized Disclosure Prohibited

The information provided in this publication is private, privileged, and confidential information, licensed for your sole individual use as a subscriber. Mauldin Economics reserves all rights to the content of this publication and related materials. Forwarding, copying, disseminating, or distributing this report in whole or in part, including substantial quotation of any portion the publication or any release of specific investment recommendations, is strictly prohibited.
Participation in such activity is grounds for immediate termination of all subscriptions of registered subscribers deemed to be involved at Mauldin Economics’ sole discretion, may violate the copyright laws of the United States, and may subject the violator to legal prosecution. Mauldin Economics reserves the right to monitor the use of this publication without disclosure by any electronic means it deems necessary and may change those means without notice at any time. If you have received this publication and are not the intended subscriber, please contact service@mauldineconomics.com.

Disclaimers

The Mauldin Economics website, Yield Shark, Thoughts from the Frontline, Patrick Cox’s Tech Digest, Outside the Box, Over My Shoulder, World Money Analyst, Street Freak, Just One Trade, Transformational Technology Alert, Rational Bear, The 10th Man, Connecting the Dots, This Week in Geopolitics, Stray Reflections, and Conversations are published by Mauldin Economics, LLC. Information contained in such publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in such publications is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. The information in such publications may become outdated and there is no obligation to update any such information. You are advised to discuss with your financial advisers your investment options and whether any investment is suitable for your specific needs prior to making any investments.
John Mauldin, Mauldin Economics, LLC and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. Corporate policies are in effect that attempt to avoid potential conflicts of interest and resolve conflicts of interest that do arise in a timely fashion.
Mauldin Economics, LLC reserves the right to cancel any subscription at any time, and if it does so it will promptly refund to the subscriber the amount of the subscription payment previously received relating to the remaining subscription period. Cancellation of a subscription may result from any unauthorized use or reproduction or rebroadcast of any Mauldin Economics publication or website, any infringement or misappropriation of Mauldin Economics, LLC’s proprietary rights, or any other reason determined in the sole discretion of Mauldin Economics, LLC.

Affiliate Notice

Mauldin Economics has affiliate agreements in place that may include fee sharing. If you have a website or newsletter and would like to be considered for inclusion in the Mauldin Economics affiliate program, please go to http://affiliates.ggcpublishing.com/. Likewise, from time to time Mauldin Economics may engage in affiliate programs offered by other companies, though corporate policy firmly dictates that such agreements will have no influence on any product or service recommendations, nor alter the pricing that would otherwise be available in absence of such an agreement. As always, it is important that you do your own due diligence before transacting any business with any firm, for any product or service.

© Copyright 2017 Mauldin Economics