Originally produced on July 24, 2017 for Mauldin Economics, LLC

By George Friedman

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.

George Friedman
George Friedman is an internationally recognized geopolitical forecaster and strategist on international affairs and the founder and chairman of Geopolitical Futures. Dr. Friedman is a New York Times bestselling author and his most popular book, The Next 100 Years, is kept alive by the prescience of its predictions. Other best-selling books include Flashpoints: The Emerging Crisis in Europe, The Next Decade, America’s Secret War, The Future of War and The Intelligence Edge. His books have been translated into more than 20 languages. Dr. Friedman has briefed numerous military and government organizations in the United States and overseas and appears regularly as an expert on international affairs, foreign policy and intelligence in major media. For almost 20 years before resigning in May 2015, Dr. Friedman was CEO and then chairman of Stratfor, a company he founded in 1996. Friedman received his bachelor’s degree from the City College of the City University of New York and holds a doctorate in government from Cornell University.