These are curious days. As President Donald Trump takes the equivalent of economic vise grips to squeeze China, the trade war appears to be entering a new and unpredictable phase.
Behind the scenes, United States officials have made it clear that the White House is still open to talks with President Xi Jinping’s government, but only if they will lead to “fruitful negotiations.”
Finding a way through the minefield of mistrust might prove extremely difficult. During the past 24 hours, the rhetoric has reached new levels after Trump told the office of the US Trade Representative to consider increasing proposed tariffs from 10% to 25% on Chinese imports worth US$200 billion.
“We have been very clear about the specific changes China should undertake,” Robert Lighthizer, the Trade Representative, said in a statement. “Regrettably, instead of changing its harmful behavior, China has illegally retaliated against US workers, farmers, ranchers and businesses.”
The immediate reaction from Beijing was predictable. Geng Shuang, the Foreign Ministry spokesman, described the move as “blackmail” and stressed that this sort of pressure “will never work on China.”
Hours later, a relatively short editorial from the state-owned China Daily was blunt in its assessment of escalating trade tensions between the world’s two biggest economies.
“It is nothing more than gangsterism for the Donald Trump administration to indicate it is considering raising the pending tariffs on $200 billion worth of Chinese goods from the 10% to 25%,” it stressed. “The US government is wrong if it believes [we] will give in to its trade shakedown.”
Yet amid the cacophony of condemnation there was penetrating insight from an unusual source. The People’s Daily is an institution in China and the official newspaper of the Communist Party. It has always been a barometer of the CCP and echoes the views expressed in the corridors of power.
In a thoughtful editorial, the People’s Daily appeared to crystallize the prevailing sentiment sweeping the country.
“The trade war ignited by the US against China has given rise to mounting worries in Chinese society that a prolonged downward trend or possible strategic deterioration of China-US ties may threaten the destiny of the younger generation,” it stated.
“Both objective analysis and ideological sentiments have been made on the ‘gloomy’ prospects of bilateral ties. China’s online ecosystem is swept by not only pessimism caused by dissatisfaction on domestic policies and the fear for a worsened [sic] China-US relationship, but also the impulsive call for tit-for-tat measures against the US,” it added.
Beijing, in fact, has been forced to reevaluate its relationship with Washington and it could not have come at a worse time. Concerns are growing about a cooling economy, as well as the effects of the two-year battle against corporate and local government debt, which has strangled investment for small- and medium-sized companies.
Last month, factory activity dipped, two surveys released earlier this week showed. Slowing exports to the US, which amounted to roughly $500 billion last year with a record surplus of $375.2 billion, will only increase if the dispute drags on.
“Although a trade war would hurt both countries, the country with the trade surplus is usually hit harder and thus is more likely to be driven to compromise,” Cheng Li, the director of the John L. Thornton China Center, and Diana Liang, a research assistant and communications coordinator, wrote on the Brookings Institute website. “This was true of Japan in the 1980s, for instance.
“But only the first half of this equation is likely to be true for China. China has already begun feeling the pain and can expect more. The trade war not only affects key engines of China’s economic development, including the Greater Bay Area, the Yangtze River Delta and the Beijing-Tianjin-Hebei Corridor, but also has broad implications for all economic sectors because of the country’s reliance on foreign trade,” they added. “China’s ability to inflict pain through tariffs alone is limited.”
But there are other issues at play as Xi’s administration realigns the economy, pushes ahead with the “Made in China 2025” policy and expands its global reach through the Belt and Road Initiative.
Xu Zhangrun, a professor of constitutional law at the influential Tsinghua University, spelled out some cold hard facts in an essay on the website of the Unirule Institute of Economics, an independent think tank in Beijing.
“People nationwide, including the entire bureaucratic elite, feel once more lost in uncertainty about the direction of the country and about their own personal security, and the rising anxiety has spread into a degree of panic throughout society,” he wrote.
Earlier this week, Xi chaired a gathering of ruling Communist Party’s Politburo with the economy taking center stage. Stability resonated throughout the statement released by Xinhua.
“We must do a good job in stabilizing employment, finance, foreign trade and investment, and expectations,” China’s official news agency reported. “We must seize the main contradictions and take targeted measures to solve them.”
Solving the Sino-US spat will take more than the platitudes being pumped out from Beijing and Washington. In the end, what is needed is pragmatism not pomposity.