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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

Ruo Yuan: What Is the United States Doing?

Ruo Yuan, the Executive Vice President and Secretary General of the China Strategic Culture Promotion Association, published an article on China’s state media, “Global Times (Huanqiu)” discussing the Trump administration’s strategy on China. The article was based on the “2017 U.S. Military Assessment Report” that the China Strategic Culture Promotion Association released. Below is an excerpt from the article:

Why has the United States taken the world by storm and provoked a trade war against China? It is as if the world is taking a quiz and few people understand what’s going on. Combined with Washington’s two previously published strategic papers on security, we will be able to see this more clearly.

On December 18, 2017, the Trump administration announced its first “National Security Strategy.” On January 19, 2018, U.S. Secretary of Defense James Mattis announced a non-confidential version of the “2018 U.S. Defense Strategy Summary.” These two strategic reports are the programmatic documents of the four years of Trump’s presidency. They show many new ideas in judgment about threats, strategic thinking, and strategic priorities. They show a clear imprint of the Trump brand. The main points are as follows:

(1) The “U.S. priority” has become a national security strategy; it marks the end of multilateralism and the rise of unilateralism.

(2) Taking China as the primary security threat marks a fundamental shift in the U.S.’s judgment about threats; it increases the possibility of Sino-US confrontation and conflict.

(3) Replacing the “contact strategy” with the “competition strategy” indicates that the U.S. foreign policy will be more confrontational.

(4) Replacing the “Asia-Pacific Rebalancing Strategy” with the “Indo-Pacific Strategy” and “South Asia-Central Asia Strategy,” indicates that the scope of China-U.S. competition will be broader. Trump expects Japan, South Korea, Australia, and other allies and partners such as India, Singapore, and Vietnam to play more and greater roles in its “Indo-Pacific strategy” and “South Asia-Central Asia strategy.” This means that the competition between China and the United States will expand from the Western Pacific to the entire Pacific, Indian Ocean, South Asia, and Central Asia. The friction and confrontation between China and the United States, China and Japan, and China and Australia may increase. China’s international security environment will be more challenging.

(5) Replacing the “automatic reduction plan” with “rebuilding military capabilities” involves increasing the defense budget and expanding the army.

(6) Replacing the “Nuclear-Free World” with “National Nuclear Forces and Nuclear Infrastructure Modernization” shows that the importance of nuclear weapons in the U.S. national security strategy is increasing.

These new ideas of Trump’s National Security Strategy are full of cold war and zero-sum competition thinking. If fully implemented, they will not only profoundly affect U.S. domestic and foreign policies, but will also affect the world’s strategic structure to a certain extent. They should garner close attention. In particular, the new U.S. national security and defense strategy named China and Russia as “revisionist countries” and long-term strategic competitors. It co-listed China, Russia, North Korea, Iran, and transnational criminal groups as threats and challenges to U.S. security interests. This may trigger a new type of cold war and deserves high vigilance. From this, we can also see a glimpse of the original intention of the United States to launch the U.S.-China trade war. This is only part of the overall U.S. strategy toward China.

Source: Huanqiu (Global Times), July 22, 2018

People’s Daily Commentary: The Claim that China Steals U.S. Technology Is a Total Lie

The Deputy Director of the Expert Committee of the China Association of International Trade wrote an opinion article that People’s Daily then published. The article asserted that the statement that “China steals U.S. technology” is a total lie that the U.S. made up. It stated that the lie has risen to the level of “economic aggression,” which is alarmist. “By distorting the facts, the U.S. has tried to portray the development of China’s science and technology as a ‘threat to the world.’” It further pointed out that the purpose for this U.S. allegation is obvious. It is to “demonize China and fool the world.” The article then listed a number of China’s achievements. They include the following: 1) China has the second largest number of international patent applicants in the world and is expected to surpass the U.S. in three years. 2) China has increased its research funding, which accounted for 2.12 percent of GDP in 2017, up by 11.6 percent compared to 2016. 3) The annual amount of intellectual property fees that China paid has increased year by year. It is ranked the fourth in the world. 4) China has become a technology transfer country whose technology transfer fees were 311.5 percent higher in 2017 compared to 2016. 5) Chinese companies are the advocates and leaders in the advancement of China’s technological development.

The article concluded that China’s technological progress and development momentum comes from its own innovative development system. The scientific and technological interaction between China and the rest of the world is benign and mutually reinforcing. It is pure nonsense to accuse China of stealing American technology.

Source: People’s Daily, July 18, 2018

Ministry of Commerce: China’s Trade Surplus with the U.S. Reached Record High in June

The Chinese Ministry of Commerce recently posted a notice on its official site regarding the news that, according to data from the General Administration of Customs, China’s June trade surplus with the U.S. reached US$28.97 billion, which is the highest level since the year 1999. The total exports to the U.S. in June amounted to US$42.62 billion, which is a new record. Overall Chinese June exports saw an 11.3 percent increase, while imports increased by 14.1 percent – both were lower than the same numbers in May. China’s overall June trade surplus was at US$41.61 billion. Experts expressed their belief that the record-setting numbers with the U.S. showed a healthy U.S. economy with strong growth as well as a slightly weakening Chinese economy. Some also thought China’s domestic spending was weak due to its lack of investments. Also, in June, China had a trade surplus of US$16.25 billion with the European Union, a trade deficit of US$2.89 billion with Japan, and a trade surplus of US$4.22 billion with Russia. In the first half of 2018, China had an overall global trade surplus of US$135.4 billion.

Source: The Chinese Ministry of Commerce Official Site, July 13, 2018

LTN: China’s Soybean “Punishment” against the U.S. Brought Uncle Sam More Business

Major Taiwanese news network Liberty Times Network (LTN) recently reported that the primary “weapon” China deployed in the trade war with the U.S. was China’s soybean tariff. China is the largest U.S. soybean buyer and the “punishment” was designed to have a negative effect on U.S. farmers, who mostly supported Trump in the last election. However, the significantly lowered price of U.S. soybean futures triggered a wave of non-Chinese buyers who even hoarded in volume. According to the U.S. Department of Agriculture, major U.S. soybean importers generated a year-over-year purchase increase of 27 percent for July-to-September U.S. soybean futures. These buyers include Mexico, Pakistan, and Thailand. Even Brazil, the  world’s largest exporter of soybeans, is planning to buy more U.S. soybeans for domestic use and export Brazilian soybeans to China at a much higher price. Argentina, as the third largest soybean exporter, increased its purchase of U.S. soybeans due to domestic weather conditions.

Source: LTN, July 12, 2018

Epoch Times Commentary: Is the Trade War a War to Fight for the Fate of China or a War That Will Lead to the Devastation of the Chinese Communist Party

Epoch Times published a commentary article titled, “Is the Trade War a War to Fight for the Fate of China or a War That Will Lead to the Devastation of the Chinese Communist Party?” Below are some highlights from the article.

Since the trade war started, the U.S. economy has shown positive signs: the stock market is stable; the U.S. currency is appreciating; the Republicans and the Democrats have a consensus on U.S. China policy.

Compared to the U.S. which is calm and united, China appears to be more chaotic. So far this year, it has had the worst stock market performance in the world. In the first six months, the market dropped down 17 percent. The Chinese currency exchange rate suffered a major decline, indicating a lower confidence in China’s economy.

The top leaders in China have also been sending inconsistent messages to the media. The latest statement that the central administration made showed a completely different position form that of the official media, which vowed to “strike back firmly” and take a hardline stance of “an eye for an eye, and a tooth for a tooth” in the trade war against the U.S. Chinese premier Li Keqiang stated on July 7 that China will not change its determination to reform and open its market. It was consistent with Xi Jinping’s previous statement of “taking caution when dealing with the trade war to avoid derailment on the path to reform.” However while it promised that, before the end of June, it would open up the market further for multiple industries, China was reported to be making it more difficult for U.S. goods to clear Chinese customs. Meanwhile the tone of the Chinese official media also changed from statements such as “The U.S. is bound to be defeated,” “We will fight back at any cost,” “The Rise of the Great Powers,” to statements such as “Hide one’s talents, and bide one’s time while waiting for the right opportunity,” “The New Cold War,” and “Fight for the fate of the nation.” The shift in the media can also be seen in articles that People’s Daily published calling to stop the boastful writing styles in the media.

No matter how chaotic it appears, one thing is clear: Beijing has come to realize that the U.S. is serious this time. The trade war is escalating into a comprehensive, sustained confrontation.

The U.S. demands fair trade from China but the current Chinese Communist Party ruling system is incapable of meeting the demand. It might appear that the war is between two countries, but what China is really fighting for is to maintain the power of the ruling Communist Party and to keep it from collapsing.

There are three obvious economic crises that China faces: the Chinese Currency Bubble (Over-supply of Money Issued); the Real Estate Bubble; and the Debt Bubble.

The trade war will not only cast a shadow on China’s economy; it will put pressure on China to resolve its currency, real estate, and debt crises. It is pushing Communist China toward a dead end. If it does not reform, pressure from the trade war will burst the economic bubble and China’s economy may collapse. If it undergoes reform, it will touch the interests of the privileged class which may result in an internal collapse of the political system. In either case, the Chinese communist party will face devastation.

Source: Epoch Times, July 10, 2018

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