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by Mish

President Donald Trump has told Chinese President Xi Jinping that he will respect the “One China” policy, in a move that will ease tensions between the powers.

In his first conversation with Xi since entering the Oval Office, Trump said the White House would honor the “One China” policy under which the US recognizes Beijing — and not Taipei — as the seat of the Chinese government.

The call with Xi — on Thursday evening Washington time — came as Trump was preparing to welcome Shinzo Abe, the Japanese prime minister, to the White House on Friday. The decision to speak to Xi on the eve of the Trump-Abe summit was designed to reduce the fallout from the lavish welcome planned for the Japanese leader. Abe will dine with Trump four times, fly on Air Force One to the president’s resort in Florida, and play a round of golf with his US counterpart.

“The significance of this phone call before the visit of Prime Minister Abe cannot be overstated,” said Dennis Wilder, a former top China analyst at the CIA now at Georgetown University. “The Chinese had sought reassurance that President Trump did not intend to overturn a fundamental principle underpinning US-China relations and north-east Asian geostrategic stability for the past four decades — the One China policy.”

Wilder added that by reasserting the commitment to the policy, “President Trump opens the ground for a constructive dialogue with Beijing on the difficult but resolvable issues of rebalancing the trading relationship that has tilted in Beijing’s favor”.

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What Happened?

It is difficult to say, but I offer one possibility: Xi threatened to cancel Boeing orders.

Previously, China told Trump there is “Nothing to Discuss” If the U.S. Drops “One China” Policy.

At that time, I commented, “This very well could be a negotiating tactic, but it’s also unclear how much China is willing to bend, if at all.”

China did not bend, Trump did.

After blasting China as a currency manipulator and threatening to end “One China” policy, Trump reversed course on at least one policy issue. A threat from Xi in regards to Boeing may have been all that it took.

I discussed potential Boeing consequences yesterday in “America First” in Practice: Boeing, a Major Casualty of Trade War With China.

This was my concluding statement: Trump and his protectionist team need to take a look at realities. So do all the misguided armchair “fair trade” activists.

And here’s the two-point reality: 1. No one wins trade wars. 2. The US had far more to lose than China.

For whatever reason, Trump backed off. His bluster failed.

Mike “Mish” Shedlock