We may be at a turning point in the trade war with China.
On Monday, Beijing’s vice premier, Liu He, China’s chief negotiator with Washington, proffered what seems like an olive branch:
“We are willing,” he said, “to resolve the issue through consultations and cooperation in a calm attitude and resolutely oppose the escalation of the trade war,” according to a government transcript of a speech at a tech conference in southwest China’s Chongqing, quoted by Reuters.
Liu encouraged U.S. companies to continue operating in his country (contrary to President Trump’s exhortation that they should leave), and addressed some of the grievances against China, promising to “protect intellectual property rights … [and] oppose technological blockades and protectionism…”
These comments came in the wake of another round of tariffs announced by Mr. Trump on Friday, a whopping half-trillion dollars, and more on Chinese products in the coming months. Both countries are being hurt by the trade war, but China is evidently hurting much more than the United States.
China’s economy is staggering from relentless pummeling by sanction after sanction: their currency, the yuan, has fallen to an 11-year low; exports to the U.S. in July fell by 6.5 percent; imports from the United States fell by 19.1 percent; the country’s producer price index turned negative for the first time in three years; and Chinese factories have resorted to selling their products to wholesalers at a discount, according to experts quoted by Forbes.
Despite the phenomenal growth of the Chinese economy in recent years, it is no match for the American juggernaut.
This is not to belittle the hardship caused to America’s growers and manufacturers. From soybeans and sorghum to computer chips and cars, the trade war is being felt on these shores.
And you don’t have to be a soybean farmer in Iowa to feel the effects of the U.S.-China slugfest. JPMorgan Chase calculated that the tariffs already imposed on China will cost the average American household $600 per year. This new round could raise that figure to $1,000 a year, the bank warned. Such items as laptops, clothing, luggage, baseball caps and bicycle parts can be expected to go up in price.
In fact, while fully aware of the mismatch between the two economies, Beijing is counting on the capacity of their people to absorb more punishment than the Americans, that the clamor from Wall Street and Main Street would force Washington to blink first.
They also figured that the political cost to President Trump would soon bring him to a more conciliatory stance. For, as it happens, much of the president’s support is in crucial swing states, where the Chinese retaliatory tariffs are targeted.
South Carolina Republican Senator Lindsey Graham spoke bluntly about it in a CBS interview on Sunday, saying that Americans would have to “accept the pain” caused by the trade war, that there was no easy way to deal with China. (Was that a politician who said that?)
Calling the Democrats out on hypocrisy, Graham noted that “the Democrats for years have been claiming that China should be stood up to. Now, Trump is, and we’ve just got to accept the pain that comes with standing up to China. How do you get China to change without creating some pain on them and us? I don’t know.”
Explaining Beijing’s strategy, he said, “I think they’re trying to wait Trump out. I think they’ve made a calculation that our elections are right around the corner. They can play this game to 2020.”
Joseph W. Sullivan, a former member of the White House Council of Economic Advisers, writing in The Atlantic, framed the issue in broader, ideological terms:
“China’s response to U.S. trade actions appears to reflect a cynicism about the efficacy of democracy. Beijing’s strategy appears calibrated to exploit the fact that the American people elect the head of their government, by attempting to influence how the American people will vote. In effect, it seems to be gambling on its ability to turn democracy against itself.
“The trade dispute, though, is now about much more than economics — it’s testing whether a democratically elected government can prevail in the face of the authoritarian government of the world’s most populous country. And everyone who values democracy or human rights should hope that, one way or another, the United States ultimately prevails in that struggle,” Sullivan wrote.
To alleviate the pain, the Trump administration has offered $28 billion in aid to farmers, of which at least $8.6 billion has already been paid out. Some $300 billion of tariffs on Chinese goods were postponed until December so as to avoid a crimp on spending by consumers during the end-of-year shopping season.
The Trump strategy would seem to be to ramp up the pressure on China to such a degree that its leaders will calculate that they cannot sustain the political costs of a slowing economy and cannot afford to wait until November 2020.
Do the comments from China’s Liu quoted previously mean that China is ready to give up on the policy of expanding its economy by fair means or foul, with no discernible preference for the former?
Not likely. More likely, China will make the smallest possible concessions that will satisfy President Trump, hoping to contain the damage and lull the world into thinking that they’ve turned over a new leaf, while intending, cynically, to go on as before, doing as much as they can get away with.
Any negotiated settlement would be meaningless, however, unless China makes significant concessions and gives up its role as the rogue state of the global economy. Hopefully, we have seen the signal that Beijing is succumbing to the tariffs campaign and is finally capitulating.
More is at stake than a balanced economic relationship. U.S. citizens and businesses should muster their patience and keep in mind that long-term benefits to the American economy and economic system are the real goals of this trade war.