After the PLA purges and on the eve of the 2027 Party Congress, a trade deal is much more than tariffs for China and the US. It is the heart of politics.
During the war with Ukraine, Russia discovered that its oil supply to Europe is a two-way street: your essential product goes out, and money and technology come in. China is in the same position with its exports to global markets, supplying crucial consumer and capital goods.
The US, Europe, and Asia all need Chinese industrial products, but China also needs foreign wealth and technology. This is especially true because China’s domestic economy is sliding into a prolonged slump. Its sluggish internal consumption cannot offset in the near future the lack of a possible cut in the surplus.
At least since 2019, when trade talks with the US broke down, China has been preparing for American decoupling. Is the US, which announced the policy a decade ago, preparing as well?
It’s not about trade, as China saw clearly. It’s about national security and the military. The threat of total or partial trade decoupling in these conditions shakes economies and social stability as much as, or more than, nuclear threats. In fact, traditional weapons of mass destruction might never be used, as the first Cold War proved. But complete or selective commercial blockades could occur overnight, with unfathomable consequences. Modern societies are dominated by the middle class, which won’t tolerate being starved of any single product. America, with a larger and more proactive middle class than China, is more sensitive.
Within this framework, US trade talks with China are the State Department’s business, as it is in China, although China is far less exposed to middle-class rumblings. These are issues of state survival, sometimes cloaked in business deals. They are about weapons of mass destruction in a postmodern guise.
It’s the language of deterrence, not through weapons but through commodities, and it’s also about mass destruction. In China, the military is responsible for this. Who is it in the USA? If it’s businessmen, it’s the wrong start.
Xi’s strong and delicate
Chinese President Xi Jinping arrives at the April summit with US President Donald Trump in a firm yet delicate position. He has overseen the most significant military purge in CPC (Chinese Communist Party) history without any backlash. About half of the top generals have been investigated or have gone missing (here). Xi’s two predecessors, Jiang Zemin and Hu Jintao, had none. According to an editorial in the PLA paper (here), Xi faced some mutiny or an attempted coup (see also here).
“Zhang Youxia and Liu Zhenli, as senior cadres of the Party and the military, have severely undermined and damaged the responsibility system of the Chairman of the Central Military Commission (Xi Jinping) and significantly promoted political and corrupt issues that influence the Party’s absolute leadership over the military and endanger the Party’s governing foundation. Their actions have severely undermined the integrity and authority of the Military Commission’s leadership team, eroded the political ideological foundation of unity and progress among officers and soldiers, and caused significant damage to the military’s political construction, ecological environment, and combat effectiveness.”
The mutiny probably occurred because Xi has scared the bureaucracy into submission. Still, bureaucrats fear him rather than actively supporting him. They know that if Xi falls, they will be in danger too, so they support him, but without enthusiasm. Xi has no power base; he has only imperial power. He has moved against the party aristocracy but has not supported an alternative to the present power structure.
Mao, drawing on China’s tradition of peasant uprisings, tried to secure the hearts and minds of the peasants, who made up well over 90% of the Chinese population. But now over 60% of the Chinese live in cities. There are no traditional villages left in the countryside. The countryside has ‘urbanized’ clusters that are closely connected to urban life and sentiments through social media and TV programs. The ancient Chinese peasants have gone extinct, and they can no longer be leveraged as a power base.
Some of the old culture remains. Ordinary people are loyal to the emperor, whoever he may be. This supports Xi’s drive to restore an imperial aura.
But society has also grown more diverse, and an imperial aura may no longer be sufficient. North Korea, ruled like the Middle Ages, has never had economic development or a middle class. China has had about 50 years of rapid growth and a sprawling middle class that is losing hope about the future and the value of its assets.
A driving force over the past half-century has been freeing the Chinese entrepreneurial spirit. In theory, they are a real power base alternative to the bureaucracy. Yet those entrepreneurs were raised by the old aristocracy, which Xi shelved.
He may want to renew the old entrepreneurial class; he needs capitalists to fight the aristocracy. The story could resemble England and France in the 17th and 18th centuries, when the kings used the new bourgeoisie to sideline the old nobility. Xi can try to manage change to stave off a revolution, of which the PLA mutiny is only a harbinger.
Party Congress?
China is unable to speak to the outside world—nobody believes what it says—and a wide range of stories is published, further undermining Beijing’s credibility. Recent articles about Zhang Youxia leaking nuclear secrets or writing a public letter highlight the problem. China needs a credible press, which can be so only if it is free.
Moreover, the 2027 Party Congress is approaching, during which Xi’s continuance will be directly or indirectly called into question. He needs a strong reason to remain in power for five or ten more years, or for life. A formal senior advisory appointment could serve that purpose. Therefore, he might need a strong motivation to stay in power.
Xi might want to achieve full convertibility of his currency and open the domestic market, breaking out of the deadlock caused by a stifling, cumbersome exchange rate that doesn’t work. A recent essay in the Party’s theoretical journal Qiushi, quoting Xi (here), hints at the possibility.
“A strong financial system equates to a strong nation; a prosperous nation is reflected in a thriving financial system. Modern world history profoundly demonstrates that the rise of great powers is invariably accompanied by a strong and mature financial system; the two mutually shape and complement each other… Finance, as a matter of national importance, is a strategic cornerstone of national development and security. The history of financial development repeatedly reveals that modern finance has an inherent double-edged nature; it can multiply resource allocation efficiency and drive economic growth, but it can also amplify local risks and trigger global crises.”
A freely exchangeable currency exposes China to potential inflows and outflows of capital. These fluctuations could trigger a financial crisis and, in turn, social unrest until the system comes into balance with the external financial system.
Exposure to foreign markets also means opening up the Chinese political system. The current sweeping purge of the military demonstrates the president’s mettle and willingness to take risks.
However, opening the Chinese political system could be tricky. The new political system should be accepted by the international community, particularly the United States. There remains deep-seated distrust between the United States and China.
One way to address the issue could be to convene a highly confidential commission to discuss financial, economic, and political reforms in China, and to bridge the gap of mistrust. The two countries could ask the Vatican, trusted by both as an honest broker, to participate in the discussion as guarantor of mutual good faith.
Still, anything can go sideways in many different directions, given the many crazy elements at play. The growing tension between China and Japan is a warning. Japan irked China after Prime Minister Sanae Takaichi said Tokyo considers Taiwan a matter of national security. Beijing blasted Tokyo, and this didn’t deter Japanese public support for Takaichi; it boosted her support. It means Japanese people are not afraid of China—quite the opposite. Standing up to China gets her votes in Japan. If that is true in Japan, it can be true or become true in other Asian countries.
Chinese nationalism has fostered regional nationalism across the region. If that doesn’t stop and turn around the clash of conflicting nationalisms in the area, with the United States’ moderating role diminishing, it could quickly escalate into a conflict.
