Trump-Xi meet, Iran tension to overshadow G20 summit in Japan

By Malcolm Foster and Michael Martina
U.S. President Donald Trump and China's President Xi Jinping meet business leaders at the Great Hall of the People in Beijing

By Malcolm Foster and Michael Martina

TOKYO (Reuters) - Concerns over trade, conflict and oil will dominate a summit of the Group of 20 major economies in Japan this weekend, with attention focussed on a meeting between the leaders of the United States and China, embroiled in a lengthy trade war.

Donald Trump and Xi Jinping will meet for the first time in seven months to discuss deteriorating ties between the world's two largest economies. But prospects of progress look slim, as neither side has given ground after talks broke down in May.

Many G20 members have a stake in the outcome of the meeting because the row has disrupted global supply chains, slowed world growth and prompted dovish views on interest rates among some of the group's central banks.

But some have expressed disquiet that the trade row might overshadow efforts to tackle pressing international issues.

The Sino-U.S. trade clash is "serious", but it shouldn't "take a multilateral body hostage", said an official of French President Emmanuel Macron’s Elysee office.

Trump will arrive in Japan's western city of Osaka just a week after calling off a retaliatory air strike on Iran after it shot down an unmanned U.S. aircraft. The threat of Middle East conflict has driven up global oil prices.

The leaders of Russia and Saudi Arabia, both G20 members, will also attend the two-day summit that starts on Friday, ahead of a meeting of oil cartel OPEC on July 1 and 2 to discuss oil supply policy.

Financial markets have rallied since Trump and Xi spoke by telephone last week and agreed to meet in Osaka and revive trade talks that collapsed in early May, after the United States accused China of reneging on its pledges.

The two sides have slapped tariffs on hundreds of billions of dollars of each other's imports in the nearly year-long trade war, even as they have tried to hammer out a broad trade deal.


"ANY OUTCOME"

Trump views his meeting with Xi, probably to be held on Saturday, as a chance to see where Beijing stands and is "comfortable with any outcome", a senior U.S. official said, on condition of anonymity.

White House officials have declined to discuss expectations ahead of the summit, saying only they are hopeful for Chinese leaders to follow through on commitments to compete fairly.

Beijing counters that U.S. demands for a host of economic reforms amount to a violation of its sovereignty.

Publicly, Chinese officials say the trade war's effects are controllable and they are in no hurry to reach a deal.

Many in Beijing hope the prospect of the 2020 U.S. election campaign could deter Trump from trade measures that risk upsetting farmers and businesses among his voter base.

"Right now we feel, actually, that we have more stamina than the U.S. side," said Liang Ming, a trade expert at the Chinese commerce ministry's Academy of International Trade and Economic Cooperation.


"NEW TRAJECTORY"

Xi is unlikely to delve into the details of a potential trade deal, as he did at a meeting with Trump in Buenos Aires in December, said a source who recently met Chinese trade officials.

Instead, Xi will try to "set a new trajectory" for ties, the source quoted the trade officials as saying.

Privately, Chinese trade experts acknowledge disagreement in policy circles about confronting Washington on trade, with many wary of further U.S. tariffs.

American sanctions on China's telecoms giant Huawei Technologies could also figure in the leaders' talks.

A truce in the trade spat is more likely than a deal, however, said Matthew Goodman of the Center for Strategic and International Studies in Washington, formerly an international economic adviser to former President Barack Obama.

Several other G20 members, such as India, Japan, Mexico and European Union nations, have had to grapple with the Trump administration's effort to remake trade ties in ways more favourable to the United States.


TENSIONS IN GULF

Ominous prospects of Middle East conflict loom over the summit, as the drone shootdown followed a series of explosive strikes on oil tankers in the Gulf.

A White House official said Trump would also meet at least eight world leaders, including Saudi Crown Prince Mohammed bin Salman, Turkish President Tayyip Erdogan and Russian President Vladimir Putin, to win support for sanctions on Iran.

Japanese host Prime Minister Shinzo Abe wants the G20 summit to focus on reforming the World Trade Organization, empowering female workers and reducing plastic trash in the ocean.

He also wants to discuss global rules for data governance that balance protection of personal and intellectual property with freer flow of medical, industrial and non-personal data.

However, the United States believes China will only gather data but not share it, a Japanese government source said.

Such differences could make it difficult for the leaders to craft a final communique, officials say.

"There's not many topics all participants can agree on," another Japanese government official said. "Maybe plastic garbage reduction is the only area no one opposes."


(Reporting by Malcolm Foster, Christopher Gallagher, Michael Martina, Roberta Rampton, Aaron Sheldrick and Yoshifumi Takemoto; Writing by Malcolm Foster and Simon Webb; Editing by Clarence Fernandez)