WHEN the G20 representatives of the world's most advanced states sit down together in the Japanese city of Osaka on Saturday, they will be aware that the most significant business is going to take place outside their conference room. The scheduled meeting between US President Donald Trump and his Chinese counterpart Xi Jinping will very probably start with a smiling photo call but, once the two leaders are alone, get down to some hard talking about the Sino-US trade war. The latest negotiations between the two biggest world economies broke down with both sides accusing the other of bad faith. Now Trump is threatening to add to the current tariffs on $250 billion of Chinese imports which Xi has warned will trigger further retaliatory tariff hikes from Beijing. It is probable that the best to be expected of their meeting on the G20 sidelines is agreeing a temporary truce. But Trump, the great dealmaker, may well believe he has the stronger hand and will insist that trade talks will only resume if the Chinese commit to change some at least of their current positions. In 2017, China sold the Americans $375 billion more goods than it bought from them. Trump protests this gross imbalance is costing US jobs and prosperity. If both countries were playing on a level playing field in which Chinese industry outperformed its US rivals on cost, efficiency, technology and quality, the Trump argument would hold no water. But it is evident, even to Trump's detractors, that this is a playing field that is very far from flat. John Bolton, Trump's national security adviser has not minced his words. He said this month that over the years the success of the Chinese economy had been based on "theft of intellectual property, forced technology transfer ... and discrimination against foreign investors". But his preface to these comments displayed the more important context of the Trump administration's thinking. He noted that it had been the strength of its economy that had enabled China to project strategic force in Asia and around the world. This week reluctant European members of NATO have been wringing their hands over the likely resumption of an expensive arms race with Russia. However, the real new Cold War is actually taking shape between Beijing and Washington. US military hegemony, not least in Asia and the Pacific, is being ever more challenged by China. Therefore, the showdown between Trump and Xi is not simply about trade and Beijing's failure to stick to the rules of the World Trade Organization. It is about power. Ronald Reagan, the cowboy movie star turned folksy politician called out the economically ailing Soviet regime with his aggressive threats and Star Wars missile plans. The end result was the collapse of Russian communism and 20 years of Washington-Moscow rapprochement which only ended under Putin. Now Trump, the hardball-playing businessman, is working up a similar approach to China. The problem is that unlike the Russians, the Chinese are resourceful and rich and hold an immense amount of US Treasury debt which they could dump to try to seriously damage US government finances. At the moment there is just a trade battle but no one should make the mistake of believing that this is what this Sino-US confrontation is really all about.
