5 things to look for as Presidents Trump and Xi meet for the first time

It is, perhaps, the most pivotal moment in US/China relations since the so-called “ping-pong diplomacy” of the early 1970s.

Then, a friendly table tennis match led to Richard Nixon becoming the first US President to visit China since the communist revolution.

Now, Xi Jinping will shake the hand of a man who campaigned on accusations that China was “raping our country” in trade and vowed to slap tariffs of up to 45% on Chinese imports.

Importantly, the leaders also meet at a time when perceptions about the relative strengths of the two nations are on the move.

So, there is certainly no shortage of things for the two Presidents to talk about. These are five key areas they are expected to focus on.

1. Jobs and trade

While there has been plenty of tough talk on China from President Trump, there is evidence that at least some members of his administration favour a more pragmatic approach. Trump’s son-in-law Jared Kushner is reported to be a key channel through which negotiations have been conducted behind the scenes.

Trump has made much of America’s trading relationship with China. The US runs a large deficit with China in the trade in manufactured goods.

In the wake of talk of 45% tariffs during the US Presidential election, President Xi Jinping at the World Economic Forum meeting in Davos warned against returning to protectionist trade policies, saying there would be no winners in a trade war.

Likening protectionism to "locking oneself in a dark room," he told countries not to pursue their own interests at the expense of others.

"No one will emerge as a winner in a trade war," President Xi said.

There is talk of a possible ‘grand bargain’ in which the US would concede a greater sphere of global influence to China in return for help for US industry, jobs and infrastructure investment but this could be controversial for both leaders.

2. Currency

President Trump said that on his first day in office he would declare China a currency manipulator. After more than 100 days of the Trump administration, no such declaration has been made.

An artificially cheap yuan enables Chinese exporters to unfairly undercut American manufacturers. A superficial look at the strength of the yuan might support the view that it is being suppressed - it fell by more than 6.5% over 2016 and reached an eight year low against the dollar.

But longer-term trends show that the relative price of Chinese goods has in fact risen significantly over the past decade. The solid line in the chart above shows that the yuan has strengthened 25 percent against the dollar in the last 10 years.

The cost of manufacturing inside China has also been steadily rising, in part because Chinese workers have been demanding higher wages.

3. Korean Peninsula

President Trump says he wants China to help solve the problem of North Korean nuclear weapons. He has held out the possibility of using trade as a lever to secure Chinese cooperation. Trump also says Washington might deal with Pyongyang's nuclear and missile programs on its own if need be.

"China has great influence over North Korea. And China will either decide to help us with North Korea, or they won’t. And if they do that will be very good for China, and if they don’t it won’t be good for anyone," he told the Financial Times.

US Secretary of State, Rex Tillerson, also sent a very clear signal that “our policy of strategic patience is over" during his recent visit to China.

Korea seems to be overtaking the South China Sea as the most contentious security issue in US-China relations. The US is committed by treaty to defend the Republic of Korea and North Korea is China’s sole treaty ally. China has supported the North since the Korean War, which cost hundreds of thousands of Chinese lives and almost ended with a unified, pro-American Korea right on China's border.

Beijing wants to keep North Korea from collapsing, something that would risk war and a regional refugee crisis.

4. Taiwan, China

President Trump openly questioned the need for the US to abide by its Taiwan/China policy - the diplomatic acknowledgement of China's position that there is only one Chinese government. Under the ‘One China’ policy, the US recognises and has formal ties with China rather than the island of Taiwan, which China sees as a breakaway province to be reunified with the mainland one day.

Trump’s decision to take a call from the Taiwan premiere, was seen as a direct challenge to China. However, the White House has since stepped back from the threat to drop the One China policy.

There has been speculation that Trump’s reversal on this issue will reinforce the views of those in China who see him as the latest in a long line of US leaders to come into office talking tough on China, only to adopt more conciliatory policies.

5. Maritime disputes

When Donald Trump’s Secretary of State, Rex Tillerson, said during his confirmation hearings that America should deny China access to the bases it had built on disputed reefs and islands in the South China Sea, some analysts thought he had accidentally overreached.

But when President Trump’s official spokesman said something similar in a White House press briefing there was speculation that Trump might deliberately and dramatically escalate military tensions with China.

There may be space for compromise here. Satellite imagery suggests that China’s island-building stopped months ago and it may be that the country has reached the point where it feels it has established sufficient military strength in the region for now.

One more thing to watch out for -- the possible introduction of a new issue as a diplomatic device to allow both to describe the meeting as a success.