After a brief détente in the trade tensions with China, it looks like things have taken a turn for the worse.
On Wednesday, China, appearing to be blindsided, responded angrily to the U.S. statement that it will proceed with tariffs and investment restrictions on $50 billion worth of Chinese products, a strategy that was put on hold just ten days ago.
Reuters reported on Wednesday that The Global Times, a tabloid paper run by the Communist Party’s official People’s Daily, ran a piece accusing the United States of being delusional, adding that reneging on trade promises “could leave Washington dancing with itself.”
“The Chinese government will have the necessary measures in place to deal with a U.S. withdrawal from any settled agreement. If the U.S. wants to play games, then China would be more than willing to play along and do so until the very end,” read the article.
But there’s more: CNBC reports that China is lining up European and Asian countries against the United States in a possible trade war, which does not bode well for U.S. Commerce Secretary Wilbur Ross’ trip to Beijing on Saturday to continue with negotiations.
This is only the latest in what President Donald Trump has described as definitely not a trade war.
We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!
— Donald J. Trump (@realDonaldTrump) April 4, 2018
His Treasury Secretary Steven Mnuchin, however, definitely called it a trade war when he said it was put on hold while the United States and China worked toward some kind of solution in narrowing the $375 billion trade gap.
“We are putting the trade war on hold. Right now, we have agreed to put the tariffs on hold while we try to execute the framework,” Mnuchin told Fox News Sunday on May 20.
But so much as happened since then. For one thing, Trump said he would allow China’s telecom giant ZTE Corp to once against buy U.S.-made parts.
Trump tweeted that the agreement was meant to save Chinese jobs, which is a total 180-degree turn from his earlier assertion that his only focus was on U.S. jobs being “stolen” by China.
President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!
— Donald J. Trump (@realDonaldTrump) May 13, 2018
It was reported over the weekend that the president’s daughter, Ivanka, secured several trademarks for her fashion lines from China on May 7, less than a week before her father seemed to relax his stance on ZTE. This has prompted House Democrats to call for an ethics investigation.
Bart Oosterveld, director of the Global Business & Economics Program at the Atlantic Council, told ThinkProgress that despite all the noise, “fairly detailed economic discussions” are going on — specifically on agricultural trade.
Having said that, the situation is less than clear, even to expert observers such as Oosterveld. If this trade war is escalated, however, things will not end well for anyone, certainly not the United States.
“If trade shrinks between these two countries, then it’s bad for global growth outcomes, bad for growth in the U.S. and bad for growth in China,” he said.
China is playing the long game
“What I’m finding hard to distinguish is what is negotiating tactics and what is economic reality,” said Oosterveld, adding he’s not sure how surprised the Chinese really are at anything that comes out of the Trump administration at this point, “statements, tweets and whatnot.”
“For one, their [the Chinese] horizon is longer than this weekend or next week or even a decade or so. They’re working on their 2025 and 2050 industrial policies,” he said, adding that, “an occasional disruption here or there for an economy that size…I don’t think they’re taken aback by sudden statements and changes in direction. They’re a large, sophisticated government.”
He also said that a trade war will, at best, only deliver, “small, short-term gains that might be expedient, politically.”
And that really underlines the difference between China and the U.S. at this point: President Xi Jinping has essentially made himself the leader of China indefinitely.
Unlike President Trump, he is neither worried about those around him being investigated for collusion with foreign government, what might happen to his party in midterm elections, or whether he will be re-elected in a couple of years. For better or for worse, Xi does not need short-term wins. Trump, who seems to live tweet-by-tweet, does.
President Trump’s horizon, at this point, does not extend beyond 2020, if that. Just Google “Trump” and “short-sighted” to see a list of issues he’s being criticized on for not thinking long-term.
Besides, Oosterveld reminds us that the Trump administration’s concerns with Chinese trade practices are neither new, nor are they unique — hence the agreement between the European Union, United States, and Japan to address these issues.
The North Korea issue
China is not only a trade partner, but also a security ally, albeit one with complicated relationships.
China is North Korea’s largest trade partner. The two countries share a border and therefore security interests as well.
So perhaps aggravating China over tariffs at a time when his administration is desperately trying to score a foreign policy win by successfully negotiating some kind of denuclearization deal with Pyongyang is not a great strategy.
“That goes for every partner and ally of the U.S.” said Oosterveld. “Currently, the E.U. is facing similar issues, with the Iran decision, the tariffs, just disagreements or different points of view on a variety of issues,” he said, referring to the 2015 nuclear deal the E.U. is trying to save (and Trump wants to kill) while simultaneously trying to push back against U.S. tariffs.
The Trump administration, said Oosterveld, “tends not to see things as related. So you are allies on one thing, but you can be adversaries on another. That’s kind of a break of diplomatic tradition.”
But do U.S. allies compartmentalize things the same way?
“Yeah, they don’t,” he said.