The status of US-China relations amid the Iran War, a postponed meeting and Paris trade talks: What this means for businesses

The world is spinning at the moment and companies might find it hard to keep track of geopolitical events and the potential impacts that might have for their business engagements. In the sphere of US-China relations, US president Trump has been calling on the Chinese government to send naval forces to the Middle East to help secure the Strait of Hormuz. In contrast to this diplomatic loudspeaker engagement, the summit meeting between Trump and Chinese president Xi Jinping that was supposed to happen at the end of this month appears to have been delayed while at the same time, trade talks between China and the US in Paris have just concluded. The question is what of all these events and political noise is actually relevant for businesses in terms of their longer-term strategic planning and is likely to have a mid- to long-term tangible outcome on business engagement?

Let’s look at the events one at a time, starting with the Iran War. I have written about Chinese views on the Iran conflict and their interests before and nothing of this has fundamentally changed. China has an interest in an overall more or less stable environment in the Middle East, partly but not only for its resources trade and it has worked on having strong economic relations with various powers in the region. Iran is one of them, but not the only one. China also does not have any interest to be militarily pulled into a conflict that it has not started and that ultimately hurts its economic interests in the entire region. The Chinese government has made this abundantly clear. This means that the demands from the US government for China to engage in a military mission in the region together with the US will most likely fall on deaf ears. On the contrary, a much more likely scenario is that China negotiates a separate deal with Iran to let oil tankers and other ships bound for China pass the Strait and thereby reduce the impact that the conflict has on China’s own economic interests in the region. Chinese newspaper Global Times already hinted at such a possibility when it referred to a statement from the Iranian Foreign Minister that the Strait was only closed for ships affiliated with Iran’s enemies and their allies. As such, there is a likelihood that China will negotiate its own backroom deals to minimise the impacts of the conflict on its economic interests and the demands from the Trump government and related reactions are just that: noise. China’s behaviour is driven by its own interests and not demands from Washington.

The second event in the US-China relations is the postponement of Trump’s trip to Beijing to meet with Xi Jinping. American officials were at pains to emphasise that this delay does not have anything to do with disagreements in the US-China relations but only with the fact that Trump as commander-in-chief needs to stay in Washington as long as the war with Iran is ongoing. There is likely to be a reasonably significant grain of truth in this statement as it cannot be in the US interest to have a Trump-Xi summit that they would like to hail as a success (especially the US side) and that would at the moment be largely overshadowed by the conflict with Iran. Also, the Chinese side still expresses a reasonable degree of interest in and appreciation for a direct meeting, so again, businesses should not overinterpret this delay of the summit meeting.

The probably more interesting event in this context is the conclusion of the trade talks between China and the US in Paris anyway. There has been a little bit of renewed atmospheric disagreement between the two countries over American trade investigations into Chinese overcapacities as well as forced labour allegations that the Chinese side was not happy with. Independent of this, the trade talks appear to have been concluded in an overall positive atmosphere, even though (like with previous trade talks) the details of what was agreed upon are sparse. The main tangible aspect in preparation of a future summit meeting appears to be the idea of establishing a working group or board of trade to better manage trade and investment-related questions and better plan bilateral trade. As with everything else, however, it is still very much unclear what such an institution is really supposed to achieve and can do and businesses should not get overenthusiastic over such a mechanism. Especially the American side will likely announce this as a big breakthrough when Trump and Xi eventually meet in person and any talking forum is always better than throwing mutual tariffs at each other. Nevertheless, it is unlikely to change the fundamental issues and disagreements as well as economic competition that characterises the US-China relationship that are driven by economic interests and national security concerns. In this case like in the two previous examples of recent events, businesses are much better served to look at the underlying driving forces that characterise the engagement between the two countries and neither be disheartened nor hyped up by any short-term events. The underlying signals that should drive strategic business planning have still not changed.