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When Theresa May meets Donald Trump, China will the be the elephant in the room

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The Telegraph, January 26, 2017

When the Prime Minister sits down with President Trump on Friday in the Oval Office, she will be in a privileged position. She will the first foreign leader to meet the president since the inauguration. Second, she will be entering “friendly” territory. Already hailed by the President as “my Maggie”, Theresa May will feel a warmth from the President that has been lacking in her recent meetings with European leaders.

Naturally, May will wish to capitalize on his open affection for the “special relationship” and hammer out a new “fair” free trade deal, propelling London to the front of the queue. She will also wish to shore up the President’s support for Nato, a bulwark against Russian revanchivism, by calling for greater European adherence to the 2 percent principle agreed by Nato member states.

What is unlikely to come up – but what should – is China. In some ways, Theresa May and Donald Trump share some concerns towards the rising Asian superpower. After all, the delay over the Hinckley Point nuclear power plant deal, backed by Chinese financing, revealed May’s security concerns over Chinese investment. On the other hand, the Prime Minister’s drive for greater access to the Chinese market may put her at odds with the Trump administration’s increasingly bellicose approach.

While it is still too early to say with certainty how serious the Trump administration is about “confronting” China, the selection of Peter Navarro – author a book called Death by China – to head the newly-created National Trade Council is a clear sign this administration will move against perceived distortions and unfair advantages inherent in the Chinese economy. As state owned enterprises (SOEs) still comprise 40 percent of the economy, these distortions have had a global effect this year, including on European steel.

While a US-China trade war could remain bilateral in the strictest sense, many agree that the fallout would be global, impacting China’s beleaguered RMB, leading to a sudden devaluation of the currency – supposedly a part of the basket of reserve currencies. In turn, this could cause jitters in London’s financial markets. Chinese goods might also increase in price if they were to be tariffed out of the American market, which has been China’s top export market since 2012. On the plus side, May might be able to use the issue to press China for greater market access, increasing British exports to the country.

Trade is not the only issue between the US and China that is set to explode this year. The South China Sea has long been a slow-burn issue for the two, but now appears to be leading to crisis. When Secretary of State appointee Rex Tillerson asserted that…

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