US-China trade war is bad news for Beijing. Illustration: iStock
China's trade surplus with the United States has widened during the pandemic. Illustration: iStock

President Donald Trump uttered a word that is not even in his vocabulary. Then, China basically called him a liar.

In the space of a week, the trade war between the United States and China reached new heights of rhetorical absurdity, rattling markets along the way, and ending in an escalation in tariffs.

On Monday, Trump went into overdrive at the Group of Seven summit in France when he was asked at a media briefing whether there was any kind of strategy behind his ‘good cop, bad cop’ approach to Beijing.

“Sorry, it’s the way I negotiate,” he replied, rolling his tongue over the S-word. “It has done very well for me over the years … It’s doing even better for the country.”

Pause for breath. Hours earlier, Trump had gone on the offensive following the latest round of tit-for-tat tariffs before the G7 gathering. “China called last night our trade people and said let’s get back to the table,” he claimed. “They understand how life works.”

Really? Not according to Hu Xijin, the editor-in-chief of Global Times, the state media pitbull of China’s ruling Communist Party. He tweeted that the US president had been “exaggerating.”

Official clarification was left to Ministry of Foreign Affairs spokesman Geng Shuang a day later.

“I have not heard of this situation regarding the calls that the US mentioned [at] the weekend,” he said at a media conference in Beijing on Tuesday.

Still, this lexicon of contortions has stretched the patience of investors, spooking markets and fuelling fears of a global recession as China’s economy slows.

US exports

On Friday, Trump was back on script. He confirmed that 15% tariffs on Chinese imports worth US$300 billion would come into force on September 1 and December 15. In addition, the existing 25% duties on products and goods worth $250 billion would increase to 30% on October 1.

President Xi Jinping’s government had already targeted US exports worth $75 billion.

“They’re on,” Trump told a media briefing. “We’re going to win the fight. We’re having conversations with China, meetings are scheduled, calls are being made. I guess the meeting in September continues to be on, it hasn’t been canceled.”

The seeds of the conflict were sown amid anger over the ballooning trade balance between the world’s two largest economies. But that has since morphed into a broader battle with Washington accusing Beijing of unfair trading practices, such as intellectual property theft and forced technology transfer, which Beijing has denied.

As the dispute dragged on, China’s economic model came under fire. Trump’s administration called for an end to excessive government subsidies for key industries and state-owned enterprises, despite a cosmetic headline-grabbing approach by Beijing to shrink the bloated SOE sector.

To add to the toxic mix, a clandestine technology arms race was set in motion.

Huawei, the 5G poster child of the “Made in China 2025” program, ended up being caught in the crossfire with allegations that the massive smartphone and telecom infrastructure group had links to “China’s state security apparatus.” Again, the company denied the allegations, but the accusations persist.

“It’s difficult at this stage to see how there can be a deal or at least a good deal,” Julian Evans-Pritchard, a senior China economist at Capital Economics, told the BBC.

“Since talks broke down back in May, the position of both sides has hardened and there have been other complications, namely the Huawei ban and Hong Kong protests, which have made it even more difficult to bridge the gap,” he added.

For Xi, these are difficult days with celebrations to commemorate the 70th anniversary of the founding of the People’s Republic of China just a month away.

Military parade

Plans for a vast, set-piece military parade in Tiananmen Square were revealed earlier this week by the official state-run Xinhua news agency.

But behind the scenes, the ruling Communist Party is facing rising trade tensions, the pro-democracy demonstrations in Hong Kong and a stuttering economy.

On Saturday, data released by the National Bureau of Statistics showed that China’s factory activity shrank in August for the fourth straight month. The Purchasing Managers’ Index, or PMI, fell to 49.5 compared to 49.7 in July amid weak domestic demand. A figure below the 50-point mark signals a contraction.

Last month, industrial output plummeted to its lowest level in 17 years while retail sales suffered as shoppers started to feel the pinch. Sluggish imports added to a bleak picture.

“Xi has had the toughest year since he came to power,” Eleanor Olcott, the China policy analyst at research firm TS Lombard, told AFP news agency. “Not only is he facing unrest on China’s peripheries in Hong Kong and Xinjiang but the trade war is weighing on a slowing domestic economy.

“[In fact,] the Xi Jinping of Davos 2017, who emerged on the world stage as [the] defender of the liberal global economic order, is unrecognizable today,” she added.

Still, the show must go. In an editorial entitled National Day chance to share with world New China’s journey, the state-run China Daily newspaper proclaimed that “with the [Communist Party] behind the wheel, [the country] now holds its destiny in its own hands.” It added:

“And the fact that it has done so while adhering to a peaceful development path and contributing to shared prosperity is something that will make others want to join China in celebrations on October 1.”

Trump and Hong Kong’s pro-democracy movement might decide to skip the party.

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