Donald Trump was toying with a presidential run in 2011 and wanted to make sure a Las Vegas crowd understood precisely how he would deal with a China that he believed had ripped off the United States for years.
“People say, ‘What can you do? What can you do?’ It’s so easy,” Trump said, in the exaggerated speaking style he uses to make clear that only idiots would disagree. “I’d drop a 25 percent tariff on China.” The crowd applauded.
“And, you know, I said to somebody, ‘It’s really the messenger. The messenger is important.’
“I could have one man say, ‘We’re gonna tax you 25 percent,’” he said, switching to a whiney, high-pitched voice.
“And I could say [to] another, ‘Listen you motherfuckers, we’re going to tax you 25 percent,’” he said, reverting to New York tough guy. “Now you said the same exact thing. You’ve said the same exact thing. But it’s a different messenger.” The crowd erupted in laughter and cheers. 1
Trump cleaned up his language about trade and China after that, but his Las Vegas remarks are probably the clearest distillation of his approach to trade battles. For Trump, trade is more about attitude, swagger, and grievance than it is about policy. Trump’s worldview, shaped by cutthroat New York real estate competition, divides people into winners and losers, champs and chumps—and Donald Trump was going to make sure he was never a chump. Global trade gave him a way to project his hypercompetitiveness onto a global stage. Nations can rise and fall on the wiles of their leaders. Trump used trade to argue that if he were in charge, America would be a winner, whatever tactics he had to use and whatever damage to the existing international order.
“He sees trade as a chance to make a stand and define himself as a strong, aggressive masculine leader who will stand up for the U.S. in a way no one else can,” says Jennifer Miller, a Dartmouth historian who has studied the origins of Trump’s trade views. “He latched on to trade as a way he can make this claim about himself.”
Some of Trump’s closest economic aides say trade is the issue he is most comfortable discussing and most confident in his judgment about. Trump on trade and tariffs is like Reagan on tax cutting, they say. President Reagan was sure that cutting taxes was the right move every time to boost the economy. President Trump looks at tariffs in the same way—a surefire winner. In his 2020 State of the Union address, he said that “unfair trade” was probably the “single biggest reason” he ran for president. That’s surely an exaggeration. But it isn’t an exaggeration to say that his focus on trade helped put him in the White House.
Trump’s confidence on trade doesn’t come from long study or experience. He made his mark in what economists call nontradable sectors—real estate development, marketing, and television. He didn’t have to compete with imports in any of those fields.
On policy, even now, after decades of talking about trade, he confuses simple concepts. In an interview with the book’s coauthor, Bob, for the Wall Street Journal, he kept calling tariffs “interest rates” and couldn’t think of the term “developing country” until Bob helped him out. 2Trump claims tariffs are paid by other countries, when they are actually paid by importers and often passed along to U.S. consumers as higher prices. He regularly argues that reducing the trade deficit with China would boost jobs and U.S. growth when there is scant economic evidence to back that up. Often when the trade deficit declines, it is a sign of falling demand overall, as when the United States tumbles into recession.
Trump’s initial foray into international trade was a marketing ploy. He wanted the public to see him as more than a gossip-column Manhattanite, famous for squiring models and plastering his name on New York landmarks and Atlantic City casinos. In 1987, shortly before he was to publish his autobiography, The Art of the Deal, he paid for a full-page ad in the New York Times, Washington Post, and Boston Globe. At the time, he was also contemplating a presidential run.
Designed as an “open letter” written in his office, Trump complained that Japan and others were getting rich because they closed their markets to imports and the U.S. military protected them. “For decades, Japan and other nations have been taking advantage of the United States,” he complained. “The world is laughing at America’s politicians,” he wrote, using a line he would repeat for thirty years.
The ad was coupled with an appearance the same day, September 2, 1987, on Larry King Live where he complained of countries that “laugh at us behind our backs because of our own stupidity.” Not long after, he used The Oprah Winfrey Show to say, “I do get tired of seeing this country get ripped off.” In 1989, he told Diane Sawyer that he would impose a 15 percent to 20 percent tariff on Japanese imports, declaring “I’m not afraid of [a] trade war.”
The trade offensive was “part of a strategy to float his name as a presidential candidate,” Roger Stone, an early Trump adviser who helped place the newspaper ads, told the Wall Street Journal’s Jacob M. Schlesinger. He wanted “to get an enormous amount of coverage; to show a different side of him,” Stone explained. 3
It was a masterstroke. “For this entrepreneur out of New York real estate and casino gambling to say, ‘Free trade is ripping you off!’ That would get people’s attention,” says Trump biographer Gwenda Blair. “It’s not what you’d expect.”
Japan was the obvious target. The country’s startling success in the 1980s and early 1990s rattled many Americans. Fuel-efficient Japanese imports were grabbing market share from Detroit gas-guzzlers. Japanese televisions, video recorders, and cameras were erasing American mainstay brands. President Trump’s former campaign chief, Steve Bannon, calls Trump “the last of the Mad Men generation”—an era when U.S. multinationals bestrode the world and Japanese imports were dismissed as “Jap crap.” How could Japan possibly be winning at trade, other than through cheating and U.S. political incompetence?
Theodore H. White, the Pulitzer Prize–winning journalist who had watched Japan’s leaders surrender on the deck of the USS Missouri, wrote in 1985 how flabbergasted he was by Japan’s rise. “Today, forty years after the end of World War II, the Japanese are on the move again in one of history’s most brilliant commercial offensives, as they go about dismantling American industry,” he said.4
Trump had plenty of company in corporate America when he complained that Japan’s markets were closed. The auto industry pressed Washington to limit Japanese car exports; the semiconductor industry lobbied for tariffs on Japanese chips. Among the most outspoken were Ross Perot, who founded Electronic Data Systems, and Robert Galvin, whose father had formed telecommunications maker Motorola Inc.
In 1987—the same year as Trump’s “open letter”—Galvin testified in Congress that Japan’s market was so shuttered that it acted as a “sanctuary to home industry while we have no and ask no sanctuary here.” Intel’s CEO Andrew Grove went him one better. In 1990, he predicted that the United States would become a “techno-colony of Japan” unless it imposed heavy tariffs on Japanese semiconductors.
Lee Iacocca, the voluble, plainspoken Chrysler Corporation chairman, whose 1984 autobiography was a bestseller, had an especially large megaphone and became a model for Trump. “I for one am fed up hearing from the Japanese, and I might say some Americans too, that our problems in this industry, all our problems are our own damn fault,” he thundered. He attacked “insidious Japanese economic and political power within the U.S.”
Iacocca palled around with Trump for a time. In May 1986, Iacocca bought a condominium for his daughter in Trump Plaza. That summer, the two men put together a $40 million purchase of a West Palm Beach, Florida, condominium complex that would be called “Trump Plaza.” Later in the year, Trump received an “Ellis Island Medal of Honor” from a foundation Iacocca chaired. Trump wrote The Art of the Deal after seeing how well Iacocca’s book sold.
Robert Lutz, Iacocca’s executive vice president, figures his boss’s trade views had to rub off on Trump, who was twenty-two years his junior. “Trade was uppermost on Iacocca’s mind; he never stopped talking about it,” says Lutz. “I’m sure the mature Lee Iacocca spent a lot of time indoctrinating the impressionable, much-younger Donald Trump.”5
The two publicity hounds later may have had a falling-out. In a 1991 Playboy interview, Iacocca said, “I know Trump fairly well. Now that’s an ego that’s gone screwloose, gone haywire.” They also began to differ on trade. Trump attacked the North American Free Trade Agreement during a 1993 conference held under a huge tent in Bakersfield, California, while Iacocca mocked those who were “scared to compete” with Mexico. Auto companies used NAFTA to move a lot of production south of the border.
Trump’s interest in trade issues only went so far, though. He never participated in the burgeoning anti–free trade movement, which fought pacts with Mexico, the Caribbean, and China, and united opponents from the left and right who agreed on nothing aside from the insidiousness of global trade deals. Participants compared the secretive Capitol Hill dinners of what they called the “No Name Coalition” to the intergalactic bar scene in Star Wars. International Ladies’ Garment Workers Union lobbyist Evelyn Dubrow, a firebrand who fought to unionize southern factories, would greet one of her chief nemeses, courtly textile magnate Roger Milliken of South Carolina, with a kiss on the cheek, as they plotted their next moves. Naderites and environmentalists sought advice from the sister of right-wing anti-globalist Pat Buchanan.
Trump never sought to join the coalition, unlike another billionaire, Sir James Goldsmith. Milliken’s chief lobbyist, Jock Nash, who was responsible for recruiting CEOs, didn’t try to tap him. “The accent he had and the way he sashayed around was off-putting to me,” says Nash, who now says he wishes he had reached out to Trump.
During the fight over admitting China to the World Trade Organization, Trump was invisible. In 2000, when Congress was debating whether to end its annual Most Favored Nation review of China’s behavior, Trump was again considering a run for president. In his campaign book, The America We Deserve, he identified China as a long-term threat but didn’t mention the WTO fight. His main policy recommendation was to make himself chief trade negotiator as well as president. “I’d lower our trade deficits and I’d save the salary of our U.S. trade representative because I wouldn’t accept it,” he wrote. Then, in perhaps the most un-Trumpian comment he has ever made, he said: “I’ve learned in the business world that bluster gets you exactly nowhere” and he criticized the Clinton administration for making “threat after threat after threat6.”
Still, his regular flirtation with presidential runs kept Trump thinking about trade and the next big challenger on the horizon, China. By the early 2000s, however, corporate America had changed. “Big Red” Milliken—as a young man his hair was red—stepped down as chief executive of textile maker Milliken & Company in 2006. His successors dropped the firm’s anti–free trade lobbying and expanded in Asia. Unlike Japan, China welcomed foreign investment, and CEOs feared offending their hosts. Facebook’s Mark Zuckerberg was typical of the new corporate generation. He made news in 2016 when he jogged around Tiananmen Square despite hazardous air pollution. “It’s great to be back in Beijing!” Zuckerberg posted on Facebook, which has long been blocked in China.
The change in CEO behavior made Trump stand out more. In 2011, he told CNN host Piers Morgan that he saw firsthand that China was cheating when he bought glass for his buildings. Chinese glass was much less expensive than American-made glass because Beijing kept its currency undervalued, he said. “I don’t want to buy glass from China,” he said. “But our companies can’t compete.” A year later, he backed the GOP’s eventual presidential nominee, Mitt Romney, who sharply criticized Chinese trade practices. Romney returned the favor, praising Trump as “one of the few people who stood up and said, ‘You know what? China has been cheating.’”7
Iacocca was replaced as Trump’s trade guru by TV news anchor Lou Dobbs, who around 2001 transformed his show from what the New Yorker called “a sort of video clubhouse for corporate America” into a populist “full-throated champion of the little guy.” China, illegal immigration, and treasonous CEOs were regular subjects. In the early 2000s, Dobbs started a series he called “Exporting America” and named U.S. companies that were shipping jobs overseas. A companion book, written by Dobbs, was titled Exporting America—Why Corporate Greed Is Shipping Jobs Overseas.
Trump, who refers to Dobbs as “the Great Lou Dobbs,” was a rapt viewer, say his aides. Bannon and Sean Spicer, Trump’s first presidential spokesman, go so far as to call their former boss’s trade views “Dobbesian.”
Trump’s 2016 campaign combined the themes Trump had developed concerning Japan with the updated journalism of Dobbs. Japan was “interchangeable with China, interchangeable with other countries,” Trump told the Wall Street Journal. “It’s all the same thing.”8
China became the Trump campaign’s symbol for lost manufacturing jobs and the bosses and politicians who sold out blue-collar America. Huge bilateral deficits were the proof that China was cheating. Tariffs were the solution—as high as 45 percent on all Chinese goods, Trump pledged.
Trump focused on the deficit, says his former campaign spokesman Jason Miller, because he thought it proved his point that China was treating America unfairly, and fairness was the crux of Trump’s campaign. Immigrants flooding into the United States were unfair to American workers. Endless wars were unfair to the working-class families whose sons and daughters signed up to fight. A nuanced message about the challenge China posed to America’s future wouldn’t work, says Miller. “That’s a loser,” he says. “It’s hard to understand. ‘Industries of the future’ don’t fit on a bumper sticker.”
Trump took the argument a step further. Don’t blame Beijing for taking advantage of America, Trump said; blame the feckless American politicians who sold out their country. Bannon says that message jibed with campaign polling showing that working-class voters “would follow a leader that would return America to its former greatness.”
An April 2016 Trump rally in Watertown, New York, an old mill town in New York’s perpetually depressed upstate region, was typical of Trump’s pitch. “I don’t blame China. I don’t blame Mexico. I don’t blame Japan,” he told the cheering crowd. “I blame our leaders for being stupid people, okay?”
The clarity of his message, repeated over and over for thirty years, resonated. “He’s been incredibly consistent” on trade issues, which gives him “the mantle of authenticity,” says Miller, the Dartmouth historian. “He developed clear and direct language. There was no hedging. He didn’t talk with nuance. It’s what he believes.”
His trade views were attacked by economists on the right and left, who put together models of how much damage tariffs would inflict on the U.S. economy. He also attracted ultranationalists like Bannon, who had run Breitbart News, a populist, hard-right news site that regularly attacked Beijing. Bannon had admired Trump’s anti-China rantings for years, and Bannon appealed to Trump’s anti-establishment side. Overweight, unshaven, with a shock of gray hair and surfer-dude patois—“Dude, Emperor Xi is going to fall”—Bannon played the role of outré political outlaw.
Another stalwart was University of California, Irvine economist Peter Navarro, who had morphed from a scholar studying electricity regulation into a pamphleteer about China. In Death by China, Navarro warned that China is “rapidly turning into the planet’s most efficient assassin” because of the dangerous Chinese food, drugs, and other products shipped to the United States and jobs stolen away.9 Trump wrote a promotional endorsement for the video version of the book, which starts with the image of a dagger, labeled “Made in China,” stabbing the heart of America, as blood spurts out. Navarro became the campaign’s top economic policy aide.
Navarro says he had read a 2011 blog post in the Los Angeles Times that said Trump had listed one of Navarro’s books, The Coming China Wars, among his twenty favorite China books. The Times item referred to a Xinhua News Agency story about Trump. But as Loren Collins pointed out in a 2017 Medium article, the Xinhua article was probably phony. 10It doesn’t exist on Factiva or other newspaper databases (and Trump advisers roll their eyes when asked if Trump has read any China book).
Navarro had little firsthand experience with China. He says he had visited the country just once before joining the campaign, though he advertised himself as a China expert. “You don’t need to go to China to understand their seven deadly protectionist sins against American workers any more than an astronomer has to go to Mars to understand the solar system,” he says in written comments for this book.11
In 2015, Trump’s campaign manager, Corey Lewandowski, said he heard a radio interview with Navarro on China while he was riding in a taxicab in New York City. Intrigued, he conferred with Trump’s son-in-law, Jared Kushner, and then invited Navarro to Trump Tower to meet first with staffers and then Trump. “We should hire this guy,” Trump told Lewandowski.
For a campaign shunned by established academics, Navarro, a Harvard-educated PhD in economics, was a “difficult find and a big get,” says Lewandowski. The protectionist economic plan Navarro produced with Wilbur Ross, a longtime Trump business associate who became Trump’s Commerce secretary, called China “the biggest trade cheater in the world.” Navarro’s credentials didn’t help. It was panned by prominent economists on the left and right.
Harvard’s Greg Mankiw, who was George W. Bush’s chief economist, said the work was “truly disappointing” and had mistakes that “even a freshman at the end of EC 10” would recognize. The errors included failing to recognize how the economy responds to changes in trade. Given how well the economy performed under President Trump—at least until the pandemic—Navarro believes he has the last laugh. “I point to one of the best performances of a president in modern economic history,” he says.12
Bannon and Navarro see themselves in Churchillian terms. To them, China is the gravest threat to America since the fascism of the 1930s. They oppose free trade for aiding China’s ascent. (Bannon is self-aware enough to realize that his liberal critics consider him one of the biggest fascist threats to America. He dismisses the criticism. “Fascism worships the state,” he says. “We’re trying to deconstruct this kind of state capitalism.”)
But Trump isn’t truly an ultranationalist. To him, China isn’t much different from Germany, Mexico, Japan, or any country that runs big trade surpluses with the United States. In the Trump worldview, they all take advantage of the United States.
He also learned from his business career that personal relations matter enormously, and he figured he could talk anyone into anything. Hadn’t he convinced hard-assed bankers in 1990 to keep him as head of his casinos when his Atlantic City empire was crumbling into bankruptcy? The bankers figured his star power would convince more gamblers to take the bus from New York for a night out.
With China, Trump would always flatter Xi Jinping as a friend with whom he could work out any problem. His notoriously undisciplined administration kept to that line as well. The tactic gave Trump a chance to build his relationship despite the trade battle. In the administration’s eye, this also gave Xi a way out if he wanted to cave to the United States. Since he wasn’t personally at fault, Xi could also blame underlings for leading him astray.
Trump has benefited greatly from one form of globalization, the massive flow of capital across borders, and takes advice as much from rich business friends as from anti–free trade followers. In the 1980s and 1990s, he hunted in Tokyo for investors in Trump Tower and other properties. (This is the flip side of trade deficits—they are funded by foreign capital, some of which found its way into Trump’s pockets.) After The Art of the Deal became a bestseller in Japan, real estate agents put together packages of photos of Trump and his Mar-a-Lago estate in Japanese mass mailings, although some would-be investors were put off by his anti-Japan rhetoric.
Asked by Time magazine in 1989 about his net worth, he said, “Who the eff knows? I mean, really, who knows how much the Japs will pay for Manhattan property these days?” The following year, he told Playboy, “Japanese investors literally gave their subordinates instructions to buy apartments only in Trump buildings.” One “just paid me $20 million bucks for seven apartments he’s turning into one.”
The bursting of Japan’s financial bubble in the early 1990s came at an especially difficult time for Trump, whose business empire was teetering on bankruptcy. Tentative deals he had reached with Japanese buyers fell apart, including plans to buy his 281-foot Trump Princess yacht and a stake in the Plaza hotel. Japanese banks were also among the final holdouts in a deal to restructure the debt for his Taj Mahal casino.
When China became a world-class market, the Trump Organization tried and failed to do at least four property deals. His lawyers sought copyrights for Trump-branded goods, including clothing and beauty products. “It was a living, breathing demonstration for him it’s a tough place to do business, a tough place to protect intellectual property,” says Ross. 13
Trump’s business dealings also brought home to him that Japan first and then China weren’t simply enemies. They were also rich markets, from which the United States couldn’t easily disengage, as Bannon, Navarro, and other Trump backers hoped would occur. Trump’s wealthy friends pressed him to stay involved with China and explained how the rise and fall of the Dow Jones Industrial Average—an index that Trump consults as avidly as he does political polls—depended in large measure on how well U.S. companies exploited opportunities in Asia.
“Trump is a successful businessman,” says Bannon. “I’m not. He looks at the world in a pragmatic sense,” while Bannon calls himself “an unreasonable man.” That meant that Trump was bound to disappoint his nationalist followers, at times, when it came to China, by being more willing to compromise than they would be. It also meant it was especially hard for Chinese leaders to understand what Trump really wanted—to fight with them unless they remade their economic system or to cut a sales deal. Trump was caught between Lou Dobbs and the Dow.
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Donald Trump campaigned for president by promising to “Make America Great Again.” Xi Jinping had the same idea for China. He called his version “the China Dream.”
Upon taking over the Communist Party’s reins in November 2012, four years before Trump won the election, Xi made it clear he wanted to restore China to the position of global primacy the Middle Kingdom had held for centuries before being eclipsed by the West. He chose to announce his plans at a massive exhibit in China’s lavishly renovated National Museum, called “The Road of Rejuvenation.”
The display told the story of China’s rise from subjugation to triumph, thanks to the Chinese Communist Party’s leadership. Featured were cannons used during the Opium Wars between Britain and China in the 1800s, which forced China to open up trade with other countries; the first Chinese translation of The Communist Manifesto, as a reminder of the party’s ideology; and the five-star Chinese flag that was hoisted above Tiananmen Square when Mao Zedong declared the founding of the People’s Republic in 1949.
At a section highlighting the country’s achievements under former paramount leader Deng Xiaoping, Xi stopped and gave a ten-minute speech that was broadcast nationwide. He was flanked by the six other members of the Politburo Standing Committee, the party’s ruling body, most dressed like Xi in dark navy windbreakers. The Chinese leader talked about everyone’s right to dream and then laid out his vision. “The greatest dream of the Chinese nation in modern times is the great rejuvenation of the Chinese nation,” Xi said.14 That was the task he set for himself. “We’re more confident and capable of achieving this goal than at any time in history,” he said.
To fulfill his ambition, Xi believed, he would first have to revitalize the party and purge it of the corruption that had turned many ordinary citizens into cynics. He would also have to rid himself of rivals and secure his position as unchallenged leader, as Deng—and Mao before him—had done decades earlier.
Xi’s “China Dream” also meant putting the nation on a collision course with the United States, as China strove to be a rival economically, militarily, and politically. Under Xi, Beijing moved aggressively to enforce what it called “indisputable” sovereignty claims to almost all of the South China Sea, one of the world’s busiest shipping routes. China’s military developed and equipped islands, rocks, and reefs across the South China Sea with military hardware, including electronic jamming equipment meant to cloak activities from U.S. surveillance.
To drive home the point that China aspired to become a global power, five Chinese naval vessels sailed into international waters in the Bering Sea just off Alaska when President Obama visited the state in September 2015. That was the first time the Pentagon had seen Chinese naval vessels there.
Beijing also competed for influence with Washington in trade and economics. In 2015, China launched a new development bank, called the Asian Infrastructure Investment Bank, as a rival to the U.S.-dominated World Bank, and won support from Washington’s allies, despite the Obama administration’s lobbying against the AIIB. Xi also put together a trillion-dollar infrastructure plan called the Belt and Road Initiative, which sought to pull Asian, European, and African nations into Beijing’s orbit.
Under the plan, China offered financing and other aid to cash-poor nations that agreed to use Chinese construction companies and buy Chinese-made goods. Washington warned that the Chinese initiative would leave borrowers indebted to China financially and politically, but had little success blunting China’s efforts. In 2019, Italy joined the project, giving China a major inroad into Europe.
Donald Trump’s victory caught Beijing’s leaders by surprise, as it did many in the United States and abroad (and even Trump himself). Although his victory owed much to working-class angst over Chinese competition, the results of the election did little to shake Xi Jinping of his faith in the superiority of China’s system. The Chinese leader frequently compares American democracy to “a sheet of loose sand”—his way of describing the partisan division that dominates Washington politics these days. By comparison, Xi says in leadership meetings, the one-party system in China allows things to get done as long as the party itself is united in thoughts and actions.
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Xi Jinping learned about the privileges of being part of the Chinese political elite and the cutthroat nature of Chinese politics at an early age. His later experiences confirmed his faith in the party, but also instilled a respect for the role of markets. That complicated mixture of experiences and beliefs makes it hard for Americans to predict how Xi will react and frequently leads the White House to miscalculate. Chinese officials have the same difficulty understanding Donald Trump.
Born in 1953, four years after Communists took over China, Xi led a privileged childhood because of his father, Xi Zhongxun, who had fought alongside Mao during the revolution. The Xi family lived in a large courtyard house in Beijing reserved for party leaders. Guards, nurses, and a cook catered to the family, which was chauffeured around town in Soviet-made cars. Xi Jinping attended elite schools and had access to foreign books and films. But those privileges came to an abrupt end in the early 1960s, when Mao launched his Cultural Revolution.
Xi’s father was purged for supporting a book deemed critical of Mao, and his son was also punished. At age sixteen, Xi Jinping was dispatched to the Liangjiahe village in northern Shaanxi province.15 He remained there for seven years and spent most of the time in a cave digging ditches with villagers to extract methane from pig waste. He persevered by burying himself in the books he had brought from Beijing. One of his favorites was a trilogy of short stories by a Ming Dynasty writer in the 1600s: Stories to Instruct the World, Stories to Caution the World, and Stories to Awaken the World.
Xi got a break in the mid-1970s when village officials helped him gain party membership and a place at Beijing’s prestigious Tsinghua University. There he studied chemical engineering as a “worker-peasant-soldier student”—meaning a student who was accepted because of his class background and recommendations, not his academic qualifications. His family’s persecution did little to erode his faith in the party. If anything, it hardened his belief that the sacrifices made by his father and his generation to establish the party’s rule should never go to waste.
Years later, as China’s top leader, he would set straight anyone who doubted the one-party system. “Although our party has made some large mistakes in its history, including in the thirty years since the founding of the People’s Republic, even mistakes as large as the Cultural Revolution, in the end it was our party that made the revolution successful,” Xi told two hundred or so senior party officials in 2013.
In the late 1990s though the mid-2000s, Xi rose through the political ranks in China’s coastal provinces, first as deputy mayor of the port city of Xiamen, later as governor of the surrounding Fujian province, and then as party secretary of neighboring Zhejiang. In all these assignments, he experimented with market incentives.
Fujian is located across the strait from Taiwan, the island viewed by China’s leaders as a rebel province. The province had long been an economic backwater as the government turned it into a military stronghold to repel a possible invasion from the island, presumably backed by America. In the late 1990s, Xi focused on economic development instead, taking a page from his father, who helped spur Guangdong province’s growth by enticing foreign businesses to locate there. In 1999, Xi endorsed a free trade pact between China and Taiwan, and offered lower tariffs and other incentives to Taiwanese companies, whose executives often had family roots in Fujian.
Xi also tried to lure foreign capital to Zhejiang, a Chinese hub of entrepreneurship. A U.S. diplomatic cable released by WikiLeaks suggests that Xi helped FedEx, Motorola, and Citibank establish operations in Zhejiang. Those companies all expanded in the province.
In 2007, Xi went on to run Shanghai, the most sophisticated of Chinese cities. Shanghai is usually celebrated as a showcase for the power of the market and foreign investment to remake China, but Xi took away a different lesson. After seeing the successful transformation of some of the big state companies owned by the city government, Xi became convinced of the value of state-owned enterprises. Private-sector development wouldn’t be sufficient to transform China, Xi believed.
One of the Shanghai-owned firms, SAIC Motor Corporation, is now China’s largest automaker. “It struck him that state companies like SAIC can be just as successful as privately run businesses,” says a Shanghai official. SAIC Motor went public in 2012, the year Xi rose to the top of China’s political apex, and has been one of the most profitable companies owned by the city government. It has joint ventures with many foreign carmakers, including General Motors and Volkswagen.
“He is a master politician who understands power,” former U.S. Treasury Secretary Hank Paulson says of Xi. “It is not easy to reconcile his absolute faith in big government and the Communist Party with private markets. First and foremost, he sees the party as the future of China and his own power.”
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When Xi rose to power in late 2012, he had a relatively weak political base. His two most recent predecessors, Jiang Zemin and Hu Jintao, were handpicked as Communist Party general secretary and president by former paramount leader Deng Xiaoping, which gave them immediate legitimacy. Xi was a compromise candidate, chosen through the intense backroom politicking by current and former leaders that is common in China.
But Xi managed to turn that weakness into strength. He silenced party elders, who traditionally retain enormous power, by launching an anticorruption crusade that swept away those who opposed him or were deemed as potential threats. Heading the campaign was Wang Qishan, a friend dating back to the years of the Cultural Revolution, when both were banished to the countryside for reeducation. Together they used a scandal involving Bo Xilai, who was Xi’s chief rival for leadership and was ultimately jailed for abusing power, as justification to target others.
The campaign brought down President Hu’s chief of staff, Ling Jihua, and a former national security chief loyal to President Jiang, Zhou Yongkang. In 2013 alone, some 182,000 party members were investigated, compared with roughly 10,000 to 20,000 graft investigations a year before Xi took power. The drive curbed the influence of networks centered around Presidents Jiang and Hu and prevented overt challenges to Xi’s authority.
President Hu had already sworn he wouldn’t interfere with Xi when he retired in late 2012. Shortly before Xi was about to introduce his new seven-member leadership team, Hu told a gathering of the party’s most senior leaders, past and present, that he wouldn’t meddle in politics as other retired senior officials had. He also announced his decision to relinquish all his positions—president, Communist Party chief, top military official—rather than cling to the military title as his predecessor, Jiang Zemin, had done.
Xi was “qualified” to be the party and military leader, Hu told the gathering. “After I retire, I absolutely won’t interfere with the next generation of leadership,” he added, emphatically. The surprise action by Hu, often viewed as a bland figurehead, helped pave the way for the newly minted leader to assert control.
Xi overturned the way China had been ruled since Deng Xiaoping came to power in 1978. Fearful of Mao-style one-man rule, China’s top leader had to negotiate decisions with other members of the Politburo Standing Committee until the group reached a consensus, making the party chief a kind of first among equals. Xi turned himself into the Chairman of Everything. He now takes personal charge of the economy, the armed forces, foreign affairs, and other power centers, though he still must take into account the political views of top party officials to make sure they don’t line up against him.
As part of his power grab, he downgraded the role of the premier, Li Keqiang, whom President Hu had backed as his successor, rather than Xi. For nearly two decades, China’s premier was responsible for managing the economy. Xi hinted at his plans to assume that responsibility in early 2013 soon after his rise to power, in a fashion that was unsubtle by Chinese standards. In a conversation with Vice Premier Ma Kai, Xi asked whether he thought the party (meaning people like himself) or the government (meaning the premier) had been more effective in running the economy.
In responding, Ma referred to the different areas of Zhongnanhai, the compound in Beijing that houses the offices of the party and the government’s top decision-making body, called the State Council.
“The northern courtyard,” Ma answered, referring to the section of the compound that houses the State Council.
“I don’t necessarily think so,” Xi replied.
Since then, Xi’s economic adviser, Liu He, has mapped out the country’s economic policy, essentially preempting the premier. Liu, a childhood friend of Xi’s, focused on stabilizing the economy while Xi strengthened his grip on the party. Liu also sought to carry out Xi’s view of economic development: push forward with some market-oriented changes, but make sure the party keeps firm control of any changes. In early 2018, when trade tensions with the United States started to escalate, Xi made Liu his chief trade negotiator. Xi’s imperative of retaining party control was bound to collide with the Trump White House’s bid to force China to operate more as a Western-style economy.
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Xi had his reasons to try to consolidate power and strengthen the party. He believed Hu Jintao’s consensus-style approach had resulted in policy drift, internal infighting, and rampant corruption. China’s economic growth, driven by exports and debt-fueled investment, was reaching its limits. Labor costs and social unrest were rising. Debts were piling up at various levels of government and in state-owned companies. Environmental woes were worsening.
The problems were starting to undermine the party’s main claim to legitimacy—that it would continue to deliver prosperity for the Chinese people. Hu’s tenure as president and party chairman, from 2002 to 2012, was regarded by some senior party members as a “lost decade” because of the lack of economic and political change. All that convinced Xi that he needed to consolidate power in his own hands to save the party.
But recentralizing power didn’t translate into bold economic reforms. Initially Xi dabbled with enhancing the market’s roles in the economy. For Xi, that was a natural continuation of Deng’s reform policies. He even considered a proposal to scrap a hulking ministry that owns and supervises state firms in favor of the “Temasek model,” named for Singapore’s sovereign wealth fund.
Under that plan, investment firms funded with the central government’s money would take over the ownership of state companies from the ministry, called the State-Owned Assets Supervision and Administration Commission (SASAC). The investment funds would allow professional managers to run the companies rather than party overlords.
Fighting for their survival at the time, senior officials at SASAC argued that the ministry was necessary to carry out Xi’s plan to strengthen the Community Party. That was best done, they argued, by increasing, not reducing, the role of state companies in the economy and the ministry’s oversight. SASAC prevailed.
In the years since, the state ministry has spearheaded a wave of mergers in powerful sectors including energy, heavy machinery, and steel. The consolidation hasn’t led to improved efficiency or profitability. Rather big state companies absorb loss-making smaller ones and keep them going.
Xi became more wary of market forces during the summer of 2015. An epic stock rally that year, dubbed by many Chinese investors “the Uncle Xi bull market” because the government encouraged stock investing, turned into an epic bust. The tumble pounded markets around the world and embarrassed Xi. At a closed-door meeting with senior economic officials in July 2015, he made clear his unhappiness with how the government had handled the market. A few days earlier, the Economist magazine had put him on its cover, portraying him with arms raised, trying in vain to hold up a plunging Chinese stock index.
“I didn’t want to be on that cover,” Xi told his underlings. “But thanks to you, I made the cover.” Xiao Gang, at the time China’s top securities regulator, went pale upon hearing Xi’s remarks. He had spent months talking up the market as a way to reform China’s economy. In early 2016, he was removed from his post.
Then in August 2015, global investors seized on a brief Chinese experiment with a freer currency to pummel the yuan. In response, Xi approved a plan that relied heavily on the state. A team of state companies stepped in to buy stocks and boost the market. The government cracked down on investors who had bet on stocks to fall. The central bank set aside all other priorities to prop up the yuan, whose weakness was driving huge amounts of capital out of the country. In Xi’s view, the market had failed, while the state had come to the rescue. 16
Today, private investment is growing much more slowly than state investment in China. Authorities have limited the expansion plans of privately owned Chinese conglomerates, which had made inroads in Hollywood and bought trophy hotels in the West. Instead, capital is flowing to government-approved infrastructure projects overseas.
The party is also taking a more visible and expansive role. Publicly traded Chinese companies now must set up party committees for their employees. “Party discussions are prerequisites for major business decisions,” according to a directive issued in early 2020 by the Central Organization Department, a Communist Party office that oversees major personnel appointments. At Baowu Steel Group, China’s largest steel producer, the party cell held 55 meetings in the past two years and reviewed 137 business and other proposals, according to Plenum, a research group in China. The party cell turned down two of the proposals and amended 16 before sending them to the company’s board of directors. Some foreign firms also are pushed to give party representatives a bigger say in business decisions.
“The direction of policy under Xi has been clear: the power that the Party had over business decisions and personnel in state firms, once wielded behind the scenes, would not only be strengthened,” wrote Richard McGregor in his book Xi Jinping: The Backlash. “The Party’s power would also increasingly be exercised explicitly, with a demand that it be recognized and acknowledged.”17
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Despite being a fervent believer in the party, Xi Jinping still retains affection for the United States. His coining of the phrase “the China Dream” was a nod to the global appeal of the American Dream, where ordinary individuals can get ahead through hard work and gumption. Xi has also told foreign leaders and his lieutenants that “we have a thousand reasons to get the China-U.S. relationship right, and not one reason to spoil it.”
He visited the United States first in 1985 when he stayed with a family in the small city of Muscatine, Iowa, and was warmly received. He sent his only child, a daughter, to Harvard. In a written interview with the Wall Street Journal ahead of his first official state visit to the United States in 2015, the Chinese leader talked about his admiration for the Americans he met. “During my last visit to the United States, my old friends in Muscatine, Iowa, talked to me about their dream,” Xi said. “I have the impression that the Americans and people in all other countries share the same dream about the future: world peace, social security and stability, and a decent life.”18
But there are limits to what he thinks China can learn from the United States. While he wants to emulate America’s economic prosperity and military prowess, he views Western-style democracy as a serious threat to the party’s hold on power. To fend off that risk, Xi stresses the need to unify the party under the banner of Marxism. His goal: to remake the party into a disciplined organization, loyal to him personally and able to reshape society and the economy.19
He often talks about the fall of the Soviet Union as a lesson for China. “Why did the Soviet Union disintegrate? Why did the Communist Party of the Soviet Union fall to pieces?” Xi said in a closed-door speech to senior party officials in January 2013, shortly after he took the reins of the party. “An important reason is that in the ideological domain, competition is fierce.”
Robert Zoellick, the former World Bank president, recalled a documentary film about the end of the Soviet Union that Xi had commissioned after he assumed office. Instead of portraying Mikhail Gorbachev, the last Soviet leader, as a hero who helped end the Cold War, Zoellick said, the Chinese version showed that “Gorbachev was the fool who abandoned the Communist Party.”
“The not-so-subtle message was, ‘It won’t happen here,’” said Zoellick, at a Washington party hosted by the U.S.-China Business Council in December 2019.20
Today Xi’s leadership is undisputed. In 2018, he eliminated the two-term limit on the presidency, allowing him to rule China for as long as he chooses. (His role as general secretary of the party never was subject to term limits.)
Yet he still faces constraints. He has a limited number of people he can truly trust. His emphasis on obedience and austerity has prompted many officials to leave government while others simply pass along orders and avoid taking initiatives. He also has antagonized many party leaders with his anti-graft crusade, and they might try to bring him down if he is perceived as deviating from the party’s core interests.
Xi turns to economic liberalization if it helps him further cement the party’s rule. “No matter how we reform and open up, we should always adhere to the socialist road with Chinese characteristics,” he told senior party leaders in the January 2013 speech. “Socialism with Chinese characteristics is socialism, not any other ‘ism.’” That speech, which wasn’t publicly disclosed by state media until six years later, leaves no room for misinterpretation: Xi is not the kind of reformer America has hoped for. 21