US-China Relations - 75. page

Trump announced on June 15 that the U.S. will impose US$50 billion in tariffs on Chinese products. Taiwan’s United Daily News published an article on June 16 and listed four possible outcomes of the China-U.S. trade war. A summary follows:

1. Both sides take a step back: This would have been possible a month ago. Secretary of the Treasury Mnuchin announced that the U.S. would put the trade war on hold while the U.S. accepted China’s increase in the purchase of U.S. products. That scenario fell by the wayside a few days later and both parties are back at ground zero. Currently it is unlikely that both parties will reach an agreement. The U.S. wants China to focus on structural change and stop forcing U.S. companies operating businesses in China to transfer their technology while Beijing will not make any concessions that result in major changes to its path to “Made in China 2025.”

2. China Makes Concessions: Xi Jinping has repeatedly expressed his desire to defend the current global trade order and promote economic restructuring. Once a trade war occurs, it will interfere with the Chinese government’s economic management work. In May, China’s economic performance already started to slow down. The most favorable situation for the U.S. is that China retreats on the issue of science and technology and becomes open to more imports of U.S. products and services.

3. The U.S. Makes Concessions: Although Trump boasted that he is a great “negotiator,” his record on foreign negotiations conducted after he took office is still lacking. China understands that Trump has always bluffed and he is quite satisfied with the rise in the stock market and the enthusiasm for the economy. The list of items involved in China’s revenge includes a series of agricultural products such as soybeans, sorghum, and cotton, which will be a major blow to states that are agricultural. It is the agricultural states that generally supported Trump in the 2016 election. Therefore, Trump’s current action may be suggesting that he not only wants to continue negotiations, but also wants to solve short-term problems first, rather than long-term problems.

4. The U.S. and China start the Trade War: Both parties may not be able to solve the problem soon and the situation may change rapidly. Both parties are reluctant to show weakness. Trump gets a lot of support from the “rust belt” traditional industrial states and these states have been heavily hit by “globalization.” As the U.S. Congress is about to hold a mid-term election in November, he must appease his political base.

Xi Jinping’s long-term strategy is to make China a global technology leader. If the U.S. requires China to make a systematic change to its basic economic model, it may put both parties in a state of long-term tension. In the past, the U.S. asked China to relax control of the steel making industry but achieved limited results.

Bloomberg’s economists expect that the direct impact of the trade war on the economic growth of the two sides will be limited. However, the harm incurred will intensify if it hurts corporate and consumer confidence. A trade war may harm American laborers, farmers, and consumers. Although it has not reached that point, it has caused anxiety. Once a major conflict occurs, the consequences will be difficult to reverse.

Source: United Daily News, June 16, 2018
https://udn.com/news/story/6811/3202642

Liu Hong, whose pen name is “Bull Piano” in Chinese, wrote a commentary article that Sohu published. Liu graduated from the Department of International Business at Nanjing University and has worked as a reporter for Xinhua for a long time. Now he is the deputy chief editor of Xinhua‘s “Global Magazine.” The article stated that China has made it clear that its bottom line is that, “It firmly defends its national interests and the interests of the people and resolutely defends economic globalization and the multilateral trading system.” The fact that China made an immediate tough counterattack on the U.S. imposed tariff of US$50 billion worth of Chinese products conveyed four meaningful signals. Below is a translation of the summary:

1. China predicted a long time ago that Trump would not easily give up on a trade war. Therefore China’s trade negotiation team was well prepared for the uncertainty of the U.S. counterpart. China shouldn’t expect that Trump will be sympathetic toward China because of his arrogant personality, the rise of populism, and the anti-globalization wave back in the U.S. Trump is very clear that, as the mid-term election is approaching, launching a trade war against China will help to increase his support. In order to win more votes, Trump will not easily give up the trade war with China.
2. China is very clear that, if someone crosses its red line, China will launch a hard counterattack. China does not want to be in a trade war and has exercised maximum patience and restraint. However, China is facing Trump who is unpredictable. As a matter of fact, the most uncertainty that China faces right now is the uncertainty of the White House. China should be clear that the end results of the trade war will hurt both sides. China will pay a big price but, in the long run, this is for China’s national interest.
3. China is ready to face the trade war. Without enough courage, without sufficient research and judgment, and without its growing power, China would not be able to withstand Trump’s intimidation. Trump launched the trade war against China to win more votes. The items on the tariff product list from the U.S. will have a limited impact on the livelihood of the people in the U.S. The trade war will impact China but the effect will be limited and manageable. Therefore, China has the confidence, ability, and experience to deal with the trade war.
4. The U.S. is turning the whole world into enemies. Trump is attacking almost all of his trade partners and threatening them with tariffs. This practice of completely ignoring the rules of the WTO is in fact extremely destructive to free trade around the world, to economic globalization, to the multilateral trading system, and to the global industrial chain. The U.S. has positioned itself against the interests of humanity and is forcing other countries to come together to resist the bullying behavior of the U.S. This could end up being a global trade war with the U.S. on one side against those countries against whom the U.S. has transgressed. China will become the most determined defender of globalization and the U.S. will be a troublemaker. It is a fact that the U.S. has the hard power and is still the strongest {country} in the world. However, the arrogant practices of the U.S. have even terrified the world. The U.S. will lose its moral influence and fall sharply from its leading position in the world. The change may not be obvious in the short term but the summer of 2018 could be a major turning point on the world stage.

Source: Sohu, June 15, 2018
http://www.sohu.com/a/236027537_115239

The Epoch Times published  a commentary titled, “The U.S. China Trade War: the Reason for the Deadlock and Beijing’s Bottom Line.” The article proposed that what China is most afraid of is a major change in its economic structure because that would endanger the communist regime. The article quoted a number of comments from scholars. Li Ruogu, the former president of the China Export-Import Bank, expressed the belief that this is a serious misunderstanding because many people regard the current Sino-US trade dispute as a pure trade or deficit problem. He said that this dispute is entirely about the direction of China’s development. Huang Yasheng, a professor at the MIT Sloan School, said that the essence of the Sino-US trade dispute is institutional conflict. The only way to resolve an institutional conflict is to accelerate market-oriented reforms and establish a sound legal system.  He stated, “It would be tantamount to abandoning the party’s leadership to business, and to the judicial and legal system.” An Epoch Time commentator believed that Beijing is still playing “order diplomacy.” That is, China can buy more things from the United States; it can even place orders in the hundreds of billions of dollars with the U.S. and it can also lower some tariffs, but it will never agree to “economic restructuring.” If the U.S. really continues to push hard, Beijing might give in. Even if Beijing were to make limited trade concessions in the future, it would do everything possible to delay the implementation of any economic structural reforms.

Source: Epoch Times, June 7, 2018
http://www.epochtimes.com/gb/18/6/7/n10463430.htm

On May 27, Reuters first reported that two U.S. Navy warships, the Higgins guided-missile destroyer and the Antietam, a guided-missile cruiser, came within 12 nautical miles in the region where China has territorial disputes with its neighbors. The article called it “an operation that is the latest attempt to counter what Washington sees as Beijing’s efforts to limit freedom of navigation in those strategic waters.” On May 28, Haiwainet.cn, People’s Daily Overseas edition, published a commentary article that Hu Bo wrote. Hu is a research director at the Institute of Ocean Research at Peking University. The article stated that the latest move of the U.S. Navy is an obvious escalation in its action to challenge China’s sovereignty in the South China Sea islands. It called the move “provocative,” and “unprecedented.” It stated that “the U.S. is uneasy with China’s growing military power in the South China Sea.” The author predicted that the U.S. will increase its presence in the region and will take more “direct and rough” provocative actions against China. As to how China should react to the threat, the article said that China has no other way except to continue to exercise its ability in the area of self-defense. According to the article, “Since the U.S. is concerned about the narrowing of the power gap between China and the U.S. in the South China Sea, the conflict and standoff could be a long term and perhaps a direct fight between China and the U.S. This could be a healthy move for the relationship between the two countries.”

Sources:
1. Reuters, May 28, 2018
https://www.reuters.com/article/us-usa-china-military-exclusive/exclusive-u-s-warships-sail-near-south-china-sea-islands-claimed-by-beijing-idUSKCN1IS07W
2. Huawainet.cn, May 29, 2018
http://opinion.haiwainet.cn/n/2018/0529/c456317-31324545.html

Xinhua published an article on its WeChat Official Account discussing the lesson learned from the ZTE incident after the U.S. Department of Commerce issued the notice on May 25, 2018, regarding the lifting of the ban on ZTE’s sales. Below is an excerpt from the article:

ZTE escaped the disaster, but the Americans almost stripped it alive by taking off one layer of its skin. The hard-earned money that ZTE made over the past few years was all made for the Americans. The lesson is very, very painful. The lesson is at least three-fold:

First, Chinese companies cannot have the slightest mentality of taking chances. In particular, in some countries, politicians have already made Chinese companies their special targets. If they try to take all kinds of chances, sometimes they don’t even know how they became dead.

Second, there is no line that the United States won’t cross today. To be fair, ZTE committed some wrongdoings, but were they absolutely worth the death penalty? However, the United States killed it with one strike. Its intention is self-evident. This also helped the world to poke through an illusion. In the past, it was always thought that the United States would not be unreasonable to the point of wiping the opponent out, similar to the practice of “trade terrorism.” However, the reality is cruel. There is nothing that the United States will care not to break. Fair trade? Fundamental principles? Everything can be thrown out of the window.

Third, it is still the word: core technology, core technology, and core technology.

Although ZTE escaped the disaster, it is believed that the psychological shock brought to the Chinese people is still quite far-reaching. We must be clear-headed. In many areas, we have indeed achieved amazing results. We must also know that, in some areas, we still have a big gap.

Especially in the area of core technology, Chinese leaders warned that core technology is the country’s most important device. If a house is built on someone else’s foundation, it may not be able to survive storms. The core technology under other people’s control is our biggest hidden danger.

The last point in particular means we must keep the alarm on!

This point, we must remember that knowing shame is akin to courage!

We must also thank the Americans for reminding us of this point!

Source: Xinhua, May 26, 2018
http://www.xinhuanet.com/world/2018-05/26/c_1122892029.htm