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Duowei Opinion Article: Reflecting on Beijing’s Misjudgment on Trade War

Duowei News, an overseas Chinese media, published an opinion article on the U.S. China trade war. It reflected on Beijing’s position on the trade war from the beginning and concluded that there are four areas in which Beijing was not prepared. Below is the translation of the article.

On July 20, President Trump told the media that he is ready to impose a tariff on US$500 billion worth of imports from China. On July 19, Peter Navarro, Director of Trade and Industrial Policy said that “China is in a ‘zero-sum game’ with the rest of the world when it comes to trade.” On July 18, Larry Kudlow (Director of the National Economic Council) said that he believes that “Xi (Jinping) is holding the game up.” In short, the trade war is still the focus of China and the U.S.

In reality, contrary to the conclusion the U.S. has drawn that Xi is blocking the trade deal, Beijing has taken a number of measures to cool down the media’s tone on the trade war. It has shifted from calling it the “Sino-U.S. trade war” to the “Sino-U.S. trade tension.” The shift is different from the previous trade tension with Japan, France, the Philippines, and South Korea, which were often accompanied by the increasingly high-profile hostility of China’s official media, and the ruthless “boycott diplomacy” against companies in these countries. This time China has torn up the scripts it relied on in other economic disputes. Instead, it has sought allies in Europe, Asia, and the U.S. themselves. China’s official media reports and comments are relatively restrained. The official Chinese media has been softening the remarks about its controversial industrial policy of Made in China 2025. Beijing has also instructed the media to avoid attacking Donald Trump himself.

On the specific approaches it took to solve the problem, Beijing has repeatedly said that it has appealed to the WTO (World Trade Organization) since July 6, highlighting the solution to trade disputes and minimizing the breakout of the trade war. It has made significant changes in its response strategy because there are several areas that Beijing has misjudged.

First, China was too optimistic about the trade war. After Liu He reached an agreement following his visit to the U.S., Chinese media widely reported on the “achievements” and conducted a special interview with Liu. This in itself suggested that China didn’t recognize the seriousness of the problem between China and the U.S. It was too optimistic. On July 10, after the U.S. announced that it would impose a tariff on $200 billion of imports from China, the Ministry of Commerce responded with shock, even though Trump had already warned on June 15 that, if China was going to retaliate, he would impose tariffs on an additional $200 billion of imports from China. It meant that the U.S. had already issued a warning and this was not a sudden move. How then could the Ministry of Commerce feel shocked? Is this a signal that it lacked preparation or there was an illusion that the U.S. wouldn’t impose a $200 billion tariff on China? China’s counter-attack measures, which were initially formulated, were aimed at Trump’s base (in agriculture states). Some Beijing media even mocked that the U.S. is an agricultural country. After several rounds of negotiations between China and the U.S., China had certain expectations that the trade war might not move forward. It believed that Trump would make a compromise in order to keep his supporters in the agricultural states and China had already met Trump’s request to import more U.S. products. So it was optimistic to think that China would definitely win the battle. In fact, the trade war was not just to reduce the deficit. Trump should know where the problem is between China and the U.S. If the trade war was an election strategy, then he would not easily give it up before his re-election, especially when Trump had already announced his intention to run) for re-election. He could at least use the trade war to win a second term.

Second, the ZTE and Huawei incidents magnified China’s loss and caused nationalist sentimentality among the Chinese public. Beijing didn’t expect the intensity of the impact. The trade war is a tough political move that the U.S. took. It is also true for Beijing. The U.S. slammed Beijing in the key science and technology area, so it has to take tough measures to respond to the feelings of loss of its general public. However while it tried to restore the confidence of its people, it also led the public to the other extreme of blind arrogance thinking that China could easily win the trade war.

Third, Beijing misjudged the influence that the American public, especially the American business community, could exercise on Trump. Liu He had intense meetings with large numbers of U.S. corporations. Beijing has repeatedly called on the U.S. companies to persuade the U.S. government (not to engage in a trade war). However, the reality is that Trump, who was a businessman, does not value input from others in the business community on his foreign policies. In August 2017, Trump made an announcement to end the manufacturing council and the Strategic and Policy Forum which consists of CEOs from large corporations. On the Paris Agreement, Trump was not swayed by the corporate lobbyists. Trump moved ahead on the trade war despite the fact that 24 major U.S. corporations jointly wrote a petition letter asking him not to impose tariffs on Chinese products. Wall Street elites Rex Tillerson and Gary Cohn were kicked out of Trump’s inner circle. Beijing should realize that Trump’s policy itself is unpredictable and others cannot easily influence Trump. The traditional influence on U.S. leaders does not work on Trump.

Fourth, from the very beginning, Beijing misjudged that Peter Navarro and other economic views would have become the mainstream and it did not expect the trade hawk would have gained control in the White House. After Trump won the election, China didn’t expect that the Sino-U.S. relationship would enter into economic confrontation so quickly because the economic views led by Navarro were not popular prior to that. At that time, Beijing was trying to use the 100-day plan to meet the Trump administration’s economic demands on China. Back in 2017, China’s official media repeatedly emphasized that China would not lose the trade war and that the U.S. is bound to be defeated. Beijing was shocked by Trump’s $200 billion tariff. It was shocked because the U.S. is risking its own interests to face a trade war with China. Beijing didn’t expect the trade hawk to become the mainstream voice in Trump’s China trade policy. As a political outsider, after Trump was elected, he took completely different approaches (from his predecessors). The trade hawks didn’t and will not lose their influence in a short time. Trump has not only changed the political environment in the U.S. but also reshaped the international stage. It is not appropriate to look at Trump with traditional eyes and techniques anymore. Beijing’s revised strategy in dealing with the trade war is, itself, a way to determine how to deal with Trump.

Source: Duowei News, July 20, 2018