China settles in to outlast US as trade dispute rumbles on
Domestic conditions in Beijing have raised the likelihood of a protracted US-China trade stoush.
The volley-for-volley trade war between China and the US is accelerating at a time when Chinese President Xi Jinping can ill afford to make concessions, raising the likelihood of a protracted struggle between the world’s two biggest economies.
Mr Xi is ordering a celebratory run-up to the 70th anniversary of the People’s Republic in October, an event that Communist Party watchers and media say will showcase him as a strong leader of a powerful nation. With his government struggling to rejuvenate a sluggish economy and quell anti-government protests in Hong Kong, Mr Xi has little leeway to take steps that would undercut his strongman image.
China also doesn’t want to be the party escalating tensions further. Throughout the trade fight it has waited for the US to impose tariffs before retaliating, and Beijing believes it can wait for the tariffs to damage the US economy and for the declining US stock market to force President Trump into making concessions, according to officials and policy advisers.
In a move that eased market concerns, Beijing refrained from announcing countermeasures to the Trump administration’s designation of China as a currency manipulator late Monday, in response to a sharp depreciation in the yuan. Meanwhile, the trade war has left swathes of America’s Farm Belt in pain, prompting the administration to disperse billions to farmers to help tide them over.
“The best retaliation is letting US tariffs on China hurt the US’s own economy,” said Yu Yongding, an economist and adviser to Chinese policy makers.
The worsening in the two countries’ more than year-old trade conflict in recent days means the US has now imposed or is poised to impose punitive tariffs on nearly all the goods it imports from China, as part of the administration’s bid to force Beijing to change rules and a subsidy-heavy economic model seen as unfair to foreign businesses. In its latest countermoves this week, China suspended purchases of US agricultural products and weakened the Chinese currency to make its exports more competitive.
The trade fight now falls into a lengthening list of irritants — from cybersecurity to theft of technology and China’s infrastructure-building program overseas — that have dragged US-China relations to what many experts say is their worst state in 40 years.
“Trump’s actions have seriously agitated the Chinese leadership, who now realise that there’s no chance of reaching a fair deal with the US” for the foreseeable future, said Shi Yinhong, an international-relations professor at Beijing’s Renmin University. “China is not just preparing for a protracted trade war, but also an escalating conflict.”
Both governments have left some room for negotiations. The US wants China to ramp up purchases of agricultural goods to relieve the trade war’s impact on farmers. Beijing, for its part, wants the Trump administration to relax restrictions on transfers of American technology to Huawei Technologies Co. Though those concessions failed to materialise in talks last week, the two sides agreed to a negotiating session in Washington in September. President Trump could put his newest tariffs on hold before the Sept. 1 effective date, and the yuan could strengthen.
“The two countries will fight while negotiating,” said Guan Tao, a former official with China’s foreign-exchange regulator. “The trade dispute between China and the US will be a long-term and complicated issue.”
In preparing the public for prolonged tensions, Chinese officials and state media have unleashed steady invective against the US in recent weeks, including accusing Washington of stirring protests in Hong Kong. On Tuesday, China’s Foreign Ministry castigated the Trump administration for withdrawing from a landmark nuclear treaty with Russia and vowed to counter any moves by the US to base intermediate-range missiles in Asia.
On the trade front, officials and state news outlets have accused President Trump of violating a truce the two countries reached in late June with his threats of additional tariffs on Chinese goods.
“China’s consistent position is that we don’t wish to fight, but we don’t fear a fight, and when the time comes, we’d have no choice but to fight,” the Communist Party’s flagship newspaper, People’s Daily, said in a Tuesday commentary. “The US shouldn’t harbour any illusions that those who break the faith and abandon righteousness can avoid paying the price.”
Mr Xi hasn’t popped up on state media in recent days, fuelling speculation that he and other leaders are likely in China’s coastal resort town of Beidaihe, where top officials have gathered most summers to discuss policy and political matters in secret. This year, discussions are likely to centre on the economy and the trade dispute, as well as the continuing protests in Hong Kong, according to China politics watchers.
The president has faced disquiet within the Communist Party elite, some of whom accuse him of concentrating too much power, making policy missteps, and provoking US and other international pushback against China’s assertive diplomacy.
“In some ways, Xi has been held hostage by his own image” as an ardent nationalist and all-powerful decision maker, said Wu Qiang, a Beijing-based political affairs commentator. “A series of small crises in the economy and Hong Kong can stack up with the China-US trade war and turn into a major crisis for Xi.”
The slowdown in China’s economy, which began last year, has persisted. Growth, which officially came in at 6.2 per cent in the second quarter, is at its slowest in decades, and the trade tensions have exacerbated the problem, weakening exports and shaking the confidence of businesses, which have pulled back investments.
President Trump’s decision to slap 10 per cent levies on $US300 billion ($440bn) in Chinese goods and label China a currency manipulator have convinced Beijing of the need to resist giving in on key issues, while stepping up measures to protect its domestic economy, some economists and other analysts said.
That balancing act, these experts said, requires precision strikes, and Beijing’s options range from restricting exports of rare earths to laying more regulatory obstacles for American companies to do business in the mainland market.
One broader countermeasure would be for Beijing to sell scads of its roughly $US1.1 trillion in US Treasury holdings. Such a move, however, is risky given that a large sale, while driving up interest rates in the US, would drive up the value of the yuan, something that Beijing is trying to avoid.
“It would be a lose-lose situation if Beijing really dumps US Treasurys,” said Tommy Xie, an economist with OCBC Bank.
—Grace Zhu and Xiao Xiao contributed to this article.
The Wall Street Journal
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