What war in the Middle East means for U.S.-China relations

President Trump is delaying his trip to China that was scheduled for the end of the month, citing war in the Middle East. The president is also, meanwhile, calling on China to send ships in to help reopen the Strait of Hormuz.

This has all cast a new light on the U.S.-China economic relationship.

For more, “Marketplace Morning Report” host Sabri Ben-Achour spoke with Scott Kennedy, senior adviser and trustee chair in Chinese Business and Economics at the Center for Strategic and International Studies. The following is an edited transcript of their conversation.

Sabri Ben-Achour: This summit between the U.S. and China is getting called off, allegedly, because of the war in Iran. Do you think that is, in fact, the real reason?

Scott Kennedy: That's probably actually the primary reason. I think the other reason is that the administration is really not prepared for a summit meeting with the Chinese. The negotiations have barely begun, and they haven't reached agreement about very much. And so I think pushing the meeting back gives them time to actually try to cobble together a bigger deal.

Ben-Achour: What is at the top of the list of economic issues between the U.S. and China right now that is not going to get dealt with?

Kennedy: From a long-range perspective, looking back over a quarter-century, what we see is an incredibly shrinking range of negotiations. Twenty-five years ago, we were negotiating with China about its entry to the [World Trade Organization] and all the reforms it needed to make to do so. Ten years ago, we were talking about a bilateral investment treaty. This year, we're talking about specific products — agricultural goods, aircraft, maybe [liquified natural gas] — and so we're not dealing with the big issues in the relationship. What they're really negotiating about is relatively small potatoes.

Ben-Achour: Why are we negotiating about such a small range of things now?

Kennedy: The U.S. is quite unhappy with the state of the relationship, but it overplayed its hand in the last year. It imposed these really steep tariffs, and China called the U.S.’ bluff, and it won. The U.S. backed down. And so we're left talking about very specific kinds of things, which could give the appearance of a win for the U.S, but we're negotiating, really, on China's side of the court. We're not touching any Chinese red lines about industrial policy or rebalancing its economy or anything like that.

Ben-Achour: How does the war in the Middle East complicate things?

Kennedy: Well, it further reduces the U.S.’s leverage with China. You could say, yes, in the short term, this raises energy prices for everyone, including the Chinese, who depend as much if not more than anyone [on] oil from the Persian Gulf. But China has stockpiles, and the U.S. is in this battle with no clear exit strategy and not a lot of support from its allies. You add on top of that the decision by the Supreme Court regarding the tariffs several weeks ago, and Trump would be going into Beijing weaker than he anticipated, really to China's advantage.