Just as US-China trade talks appeared to be making progress, Beijing, in a clear toughening of its stance, on Friday announced that it would impose additional tariffs on about US$75 billion of US goods in two stages, beginning today and on Dec. 15, with a 25 percent duty on US vehicles also being reimposed on Dec. 15.
The Chinese response caught Washington off-guard. In retaliation, US President Donald Trump tweeted that the US would force US companies to leave China and ensure that their manufacturing operations are returned to US shores or relocated to third-party countries.
Why did Beijing suddenly toughen its stance the night before negotiations were due to restart? There are probably two factors at play: strategy and timing.
First, Beijing has altered its strategy for responding to the trade war. A policy of amicable dialogue has been replaced with a “new Long March” attitude prepared for a long-term war of attrition. Whipping the Chinese public into a patriotic fervor and organizing a “united front” network, while portraying US trade policy as a threat to the wider global economy, appears to be the strategy.
Beijing seeks to expose economic contradictions between the US and other countries, and to exacerbate tensions between the US public and Washington.
At the same time, China is willing to sit this out and wait for a change in the US political environment, which could be triggered by a weakening US economy or a change in Trump’s electoral chances. By playing for time, Beijing believes that it can exploit a future US financial crisis or debt crisis to its advantage.
Second, China’s negotiation strategy has switched gears from being defensive to going on the attack. This increased assertiveness is a tactic designed to allow China to take the driver’s seat in the talks.
Chinese Vice Premier Liu He (劉鶴) has listed three preconditions that must be met by the US side to reach an agreement: lifting restrictions on Huawei Technologies Co, the removal of all punitive tariffs by both sides and an agreement with a balanced text, one that embodies mutual respect, reciprocity, goodwill and sincerity.
In contrast to Beijing’s previous somewhat vague and weak responses, these three preconditions demonstrate that China has clear demands and red lines for the negotiations.
Finally, the trade dispute has expanded into a war of technology, currency and international political relations.
The US invoked last year’s National Defense Authorization Act to place an embargo on five Chinese telecommunications, systems and service providers, demonstrating this war is not purely about economics and trade.
US and Chinese interests are becoming more tense and divergent: US restrictions on exports to China on the grounds of national security considerations, Beijing’s significant depreciation of the Chinese yuan, the South China Sea, the Korean Peninsula, the Belt and Road Initiative and the US’ Indo-Pacific strategy.
The protests in Hong Kong and US arms sales to Taiwan are two areas that are particularly sensitive for China. In grappling with these problems, Beijing must maintain a positive global image so that it can continue to become a major power, while responding to a large number of domestic critics unhappy with the direction it is taking.
Perhaps the best strategy open to Beijing is still to divert the attention of the Chinese public away from domestic affairs and toward external events, prompting a shared protest against the US.
This would provide a handy valve for releasing pressure from disenfranchised Chinese citizens, struggling in a slumping economy. The US-China trade spat provides the perfect scapegoat for China’s leaders.
Liu Meng-chun is director of the First Research Division at the Chung-Hua Institution for Economic Research.
Translated by Edward Jones
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