For officials in Beijing, the worry about US President Donald Trump’s latest tariffs is not the impact on trade: Rather it is the steady march toward a long-term competition that could thwart China’s rise.
Trump slapped tariffs on US$200 billion of imports from China and threatened more if Beijing retaliated.
On Tuesday, China said it would levy tariffs on US$60 billion of US goods effective from Monday next week.
Chinese President Xi Jinping’s (習近平) government is preparing for Trump to put duties on all Chinese goods and expects him to start using the US’ military, technological and financial advantage to pressure Beijing, said one Chinese official, who asked not to be identified speaking about sensitive matters.
“After levying tariffs on all Chinese imports, what can Trump do?” the official said. “There will be systemic containment and suppression.”
Despite Trump touing a personal “friendship” with Xi, US-China ties have deteriorated on virtually every front under his presidency, from trade and cybersecurity to geopolitical flashpoints like Taiwan and the South China Sea.
The fear in Beijing is that Trump’s main goal is to keep Beijing permanently in second place in a world dominated by the US.
“More and more in China’s elite circle now think Trump’s trade war is not just about fair trade and trade balance,” said Zhang Baohui (張寶輝), director of the Centre for Asian Pacific Studies at Lingnan University in Hong Kong. “Rather, it is a containment program to change China’s long-term power trajectory.”
In public, Chinese leaders are projecting confidence in the face of Trump’s escalating threats.
China Securities Regulatory Commission Vice Chairman Fang Xinghai (方星海) said the country’s economy would be fine, even if Trump slaps tariffs on all of China’s imports.
“China has ample fiscal and monetary policies to cushion that impact,” Fang told the World Economic Forum in Tianjin, China, on Tuesday. “So we prepare for the worst, and we think the economy will still be fine.”
However, under the surface, officials have reasons to worry. China’s economic momentum weakened again last month. Investment growth in the first eight months of this year slowed to the lowest pace since at least 1999 and infrastructure investment rose just 4.2 percent, the weakest expansion since the data series started in 2014.
The country’s stock market has also been tanking. This week the Shanghai Composite Index fell to its lowest level since 2014, before the US$5 trillion boom and bust in the country’s equity market.
That economic weakness might be one reason China has not yet completely closed the door on further talks with the Trump administration.
The Chinese Ministry of Finance on Tuesday said that it was still open to dialogue with the US, even though it was unclear if talks led by US Secretary of the Treasury Steven Mnuchin would go forward.
Chinese officials appeared eager to discuss details out of the media spotlight, and Trump’s Twitter feed.
On Tuesday, Trump accused China of trying to impact US elections by “attacking our farmers, ranchers and industrial workers” and vowed “great and fast economic retaliation.”
One Chinese official, who also asked for anonymity, said it might be better to hold talks with the US informally, out of the public eye.
Communication is essential to avoid misunderstandings, former Chinese vice minister of finance Zhu Guangyao (朱光耀) told reporters on Monday night in Brussels.
“Substance is more important,” Zhu said. “We hope that both China and the US can really enhance understanding and get back to the right track for cooperation.”
For now, the options available to China’s leaders are limited.
Retaliate with full force and they risk further provocations that could harm the economy. Compromising too early risks signaling weakness, which could prompt Trump to ask for even more and undermine Xi’s strongman image at home.
No matter what, Chinese officials are digging in for a protracted conflict. They have been skeptical of talks ever since Trump embarrassed Xi’s top aide a few months ago by stopping a deal for China to buy more energy and agricultural goods to narrow the trade deficit.
Trump has boasted that his trade policies had stopped China from catching up with the US.
The latest tariff measures do even more to suggest the conflict will last beyond the US’ midterm elections in November, and even the Trump presidency: The 10 percent tariff that takes effect on Monday would rise to 25 percent on Jan. 1 next year — a move the US has said would help companies readjust their supply chains.
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