Trump and Xi should do their BIT to improve relations

10 January 2017. By Toh Han Shih.

Incoming US President Donald Trump and Chinese President Xi Jinping should sign a US-China Bilateral Investment Treaty, or BIT, notwithstanding trade and geopolitical tensions between their two countries. The prospects for concluding the ongoing BIT negotiations have brightened, judging by a Facebook post earlier today by Trump on his meeting with Jack Ma Yun, the chairman of Alibaba Group, China’s biggest e-commerce company.

Trump’s Facebook account displayed the caption “Alibaba job boom: Jack Ma chats with Trump about how to create 1 million US jobs over 5 years” and carried an article by CNBC reporting that the US president elect had had a “great meeting” with Ma.

“Alibaba will create one million US jobs by enabling one million American small businesses and farmers to sell American goods to China and Asian consumers on the Alibaba platform,” the New York-listed company said in a statement.

“Jobs!” is one of Trump’s political mantras, alongside “Hire American, buy American.”

It remains to be seen how many jobs Alibaba will actually create in the US, but the China-US BIT will encourage more Chinese investment stateside, which will generate jobs. A BIT is an agreement between two countries that sets up rules for mutual foreign investment. When countries sign a BIT, both nations agree to provide protections for the other country’s foreign investments that they would not otherwise have.

Chinese investment now accounts for more than 100,000 jobs in the US, a big leap from less than 20,000 in 2010, according to an estimate by the Rhodium Group, a US consultancy. In 2016, the US became the largest recipient of Chinese overseas investment, receiving $45.6 billion of completed acquisitions and greenfield investments, triple the amount in 2015, according to the Rhodium Group. Chinese companies are currently awaiting regulatory approvals for $21 billion of planned US acquisitions, the Rhodium Group said in a recent report.

On Twitter, Trump has been encouraging multinationals to create more jobs in the US and threatening them if they move jobs outside the country.

Yesterday, Trump put out two consecutive tweets: “It’s finally happening — Fiat Chrysler just announced plans to invest $1BILLION in Michigan and Ohio plants, adding 2000 jobs. This after….

“Ford said last week it will expand in Michigan and U.S. instead of building a BILLION dollar plant in Mexico. Thank you Ford & Fiat C!”

On January 5, Trump tweeted: “Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for U.S. NO WAY! Build plant in U.S. or pay big border tax.”

The risks of geopolitical tensions and trade friction loom large over Sino-US relations.

On Jan. 2, Trump tweeted: “China has been taking massive amounts of money & wealth from U.S. in totally one-sided trade, but won’t help with North Korea. Nice!”

It is unfair for Trump to accuse China of “taking massive amounts of money from the US,” given that Chinese investment in 2016 was nearly nine times the level five years ago, as the Rhodium Group estimated.

Sino-US tensions have already been exacerbated by Taiwanese President Tsai Ing-wen’s meeting with US Senator Ted Cruz and Texas Governor Greg Abbott on Jan. 8 during her visit to the US.

During a press conference at the Chinese Foreign Ministry in Beijing on Jan. 6, a reporter asked about media reports that China was vetting a number of large US companies, and that if Trump launched punitive trade tariffs on Chinese goods, Beijing could punish US firms with antimonopoly and tax laws.

A Chinese Foreign Ministry spokesman replied: “I wonder where you got this information. We keep stressing that the benefits of business cooperation between the two countries will be felt not only by the two countries, but also the whole world. We welcome foreign companies investing and operating in China, including American ones. Meanwhile, it must be made clear that these foreign enterprises must obey Chinese laws while in China.”

Trade and geopolitical frictions between the US and China might delay or alter the BIT, but not destroy it. Both countries are too advanced in their negotiations that it is unlikely the BIT will be scrapped.

Last October, US Treasury Secretary Jack Lew said the outgoing Obama administration was trying to get the deal “as close to done, if not done, as possible”.

The previous month, China’s Ministry of Commerce said BIT negotiations had made significant progress, as MLex reported.

As a businessman, Trump might play tough in negotiating with China on the BIT, but he is unlikely to scrap the agreement. His book “The Art of the Deal” contains these nuggets:

“My style of deal-making is quite simple and straightforward. I aim very high, and then I just keep pushing and pushing and pushing to get what I’m after. The worst of times often create the best opportunities to make good deals. Deals work best when each side gets something it wants from the other.”