It is counterproductive to apply obsolete Cold War strategies against China. Image: iStock

We have all been there, working for a boss who changes his mind more often than his underwear.

So, just imagine what it must be like for US Treasury Secretary Steve Mnuchin, Trade Representative Robert Lighthizer and China’s Vice-Premier Liu He in the world of the political chameleons.

These are the guys trying to untangle the trade war threads which threaten to strangle the global economy and weave a deal, or even an economic truce, between the United States and China.

But shifting priorities and statements by the men they answer to, US President Donald Trump and Chinese counterpart Xi Jinping, have played a role in prolonging the year-long conflict of wills in a battle of mind games.

“Both sides are locked in an uncomfortable embrace where neither can leave without making things worse for them,” Bill Reinsch, of the Center for International and Strategic Studies, said. “The wild card, as usual, is the [US] president; his behavior, particularly over the past few weeks, has made the situation much more uncertain and appears to be causing the Chinese to conclude that an agreement with him may be impossible.

“Essentially, the president has made himself the negotiator, undermining the credibility of Lighthizer and his other advisers. In fairness, Xi Jinping may have done the same thing to Liu He,” Reinsch wrote in an opinion piece, entitled Another China Round, for the Washington-based think tank.

“It is very difficult to negotiate a deal when both sides believe the other may at any point be undercut by his boss,” he added.

Preliminary discussions will take place later this month before high-level negotiations resume in early October. Last week, there were even suggestions that Trump had modified his tough stance.

“I see a lot of analysts are saying an interim deal, meaning we’ll do pieces of it, the easy ones first,” he told a media briefing. “But there’s no easy or hard. There’s a deal or not a dealIt’s [an interim agreement] something we would consider, I guess.”

Tariff hikes

Tensions between the big two have eased after Trump decided to delay tariff hikes on Chinese imports worth US$250 billion until October 15. They were due to kick in on October 1, the 70th anniversary of the founding of the People’s Republic of China.

“We have agreed, as a gesture of goodwill, to move the increased Tariffs on 250 Billion Dollars worth of goods [25% to 30%], from October 1 to October 15,” Trump tweeted on September 11.

Since then, Beijing has offered to buy more farming produce, such as soybeans and pork. Official news agency Xinhua has also quoted Vice-Premier Liu as saying that the “trade balance, market entry and investor protection” would be part of a relatively narrow agenda in Washington discussions.

But like Mnuchin and Lighthizer, he has his own problems navigating through this maze of uncertainty despite being an economic confidant to Xi.

YouTube video

“The US-Chinese trade war has spurred complaints that Xi misjudged China’s economic clout, overplayed his hand, and bungled negotiations with Trump’s team,” Cheng Li, a director at the John L. Thornton China Center, and Diana Liang, a foreign policy researcher, wrote in a commentary for the Brookings Institution, a Washington-based think tank.

“Chinese private entrepreneurs and the middle-class share many of the same concerns as foreign companies in China: they are frustrated that promises Xi made in 2013 to reform and open markets have stalled. They complain about the rapid advance of state firms at the expense of smaller, private ones,” they continued.

“Whereas economic growth may have once mollified these domestic critics, China is experiencing a slowdown, resulting in part from economic structural change but amplified by the trade war,” Li and Liang added.

The depth of the downturn in the world’s second-largest economy was illustrated in data released by the National Bureau of Statistics on Monday with industrial production expanding at its slowest pace in 17 years.

Overall output, which includes manufacturing, mining and utilities, increased by 4.4% in August compared to the same period last year, the weakest rate of growth since February 2002.

Retail sales

To add to the economic misery, retail sales increased by 7.5%, which at first glance looked reasonably healthy. But a closer inspection showed the figure was down on July’s numbers, hitting levels not seen since April.

“We must be aware that international instabilities and uncertainties are increasing significantly, and that at home economic structural issues are still prominent and the downward pressures on [the] economy are mounting,” Fu Linghui, a spokesman for the National Bureau of Statistics, said.

Premier Li Keqiang has already warned that maintaining GDP, or gross domestic product, growth of around 6% will be extremely “difficult” after it crawled to 6.2% in the second quarter. In short, the smallest rise in almost three decades.

“For China to maintain growth of 6.0% or more is very difficult against the current backdrop of a complicated international situation and a relatively high base, and this rate is at the forefront of the world’s leading economies,” he was quoted in an interview with the Russian media, which was published on the Chinese government’s website.

The US economy is also showing signs of stress as both sides struggle to find common ground.

Indeed, the fallout is even squeezing global growth with the world facing challenges not seen since the financial crisis in 2007, according to the International Monetary Fund.

“Trade tensions …. are not only a threat but are actually beginning to weigh down the dynamism in the global economy,” Gerry Rice, the IMF spokesman, said last week. “[US-China tariffs] could potentially reduce the level of global GDP by 0.8% in 2020, with additional losses in future years.”

Playing mind games, it appears, can seriously damage your economic health.

Leave a comment