What Can We See From the Sudden Escalation of the Sino–US Trade War?

What Can We See From the Sudden Escalation of the Sino–US Trade War?
President Donald Trump speaks during a trade meeting with China's Vice Premier Liu He (C) in the Oval Office at the White House in Washington, DC, on April 4, 2019. (JIM WATSON/AFP/Getty Images)
Cheng Xiaonong
The back-and-forth tussle between the United States and China in the Sino–U.S. trade war has taken a new turn, with Beijing’s sudden offensive aimed at the American economy and causing a political fiasco for Trump that could affect next year’s U.S. presidential elections. For the first time in history, a world economic power has taken the method of attacking the economy of another world power in order to alter the short-term domestic political prospects of that country. There is no longer any doubt that China and the United States are not engaged in a trade war, but in economic warfare. And the goal is beyond the economic scope, pointing directly at the position at seat in the Oval office.

Targeting the American Economy

According to Duowei News, an overseas Chinese-language media with ties to Beijing, the Chinese Ministry of Finance announced Aug. 23 that it would impose tariffs on $75 billion worth of U.S. imports, to be implemented starting Sept. 1 and Dec. 15 respectively, and would resume import tariffs on U.S. auto parts that had been previously paused last December. Subsequently, starting in September, additional tariffs on U.S. soybeans would reach 30 percent, tariffs on seafood, fruit, and meat will rise to 35 percent; starting mid-December, U.S. grain and vehicles will also incur additional tariffs of 35 percent, which is the first time that Beijing has gone after American crude oil. A few hours later, Trump announced on Twitter that on Oct. 1, the United States would raise the existing tariffs on $250 billion of Chinese goods from 25 to 30 percent. At the same time, effective Sept. 1, tariffs on the other $300 billion of Chinese imports would rise from 10 to 15 percent.

From the above reports from the CCP’s mouthpieces, it’s clear that this time it is Beijing that has taken the initiative in adding tariffs on U.S. goods, and it is Trump who is on the defense. The CCP’s overseas media also admitted that in this sequence, Trump is counterattacking; in other words, Beijing is the aggressor. However, some overseas media reversed the chronological order of the events, thus misleading the audience into believing that the United States first added tariffs, and that the CCP reacted out of necessity. Therefore, it is crucial that the facts are clarified, but more importantly, since it is the Party that made the first move, it is necessary to analyze its motives and goals in depth. Moreover, the CCP’s move has caused a reversal in Sino–U.S. relations of the past decades, making an in-depth analysis of the origin and background of the event even more relevant.

In combating the United States, the Chinese Communist Party (CCP) has gone public with a strategy of “creating an enemy for itself”; on the strategic scene, it has escalated to economic confrontation.

A US Counterattack Is Precisely What Beijing Wants

Beijing’s initiative to increase tariffs seems to be a tactical response, but its purpose is very clear. Since China abandoned its sincerity in Sino–U.S. negotiations, this tactic carries the clear connotation of challenge. The U.S. economy is now the main target.

After the Chinese side suddenly overturned the negotiating table in early May and threw away the agreements it had made to 90 percent of the U.S. demands, the United States increased tariffs on China’s exports to the United States to exert pressure, while continuing to express its willingness to continue negotiations. Were the Chinese side willing to play along and go through the motions while stalling for time, its relationship with Washington would not be good, but neither would it be in its current state of rapid deterioration. However, Beijing no longer has that kind of patience. It has now assumed an offensive posture by suddenly taking the initiative to impose tariffs on American products.

In response to this sudden “offensive” by Beijing, Trump’s across-the-board tariff increase is an entirely predictable measure. After Beijing overturned the negotiation table in May, the United States lost the space for friendly consultation and settlement of problems. Although Trump is still arranging for communication between the two parties, it’s been reduced to little more than a formality. Now, Beijing has taken the initiative to exert pressure on the United States and completely prevent the export of U.S. goods to China, which blocks any possibility of the United States narrowing its long-term trade deficit of hundreds of billions of dollars with China. The United States can no longer expect cooperative intent from China in resolving the trade deficit between the two sides nor on issues such as intellectual property theft. The only option Trump has left to reduce the U.S. trade deficit with China is to comprehensively and substantially increase tariffs on Chinese goods.

Since then, the complete deterioration of U.S.–China economic and trade relations has all but become a foregone conclusion. In fact, this is also part of Beijing’s plan. The Beijing-run Global Times has stated that it is necessary to fight a war of attrition with the United States.

Duowei reported: “After the end of the first exchange of blows, the market is stained with blood. Besides skyrocketing gold prices, the U.S. stock index, the offshore RMB exchange rate, crude oil prices, and U.S. Treasury yields have all fallen sharply. Although the losses from the trade war for the two sides have reached a new peak... the possibility of a recession for the United States is gradually emerging.” This is China’s basic calculus in its current economic war with the United States.

Why Has Beijing Adopted a Lose-Lose Strategy?

In a little more than a year, Beijing’s attitude in the Sino–US trade and intellectual property negotiations has taken a 180-degree turn. It has gone from cooperative negotiation to torpedoing discussions, and then from passively responding to the pressure of the United States’ gradual tariff increases to actively increasing tariffs, to which the United States has countered with steep tariff increases.

Does Beijing’s motive for “pressing home the victory” come from its realizing the “inevitability” of America’s decline? Or is China instead trying to make the best of a bad situation by enduring short term pain for long term gains, such as forcing Trump out of office, that it hopes to reap by landing a heavy blow upon the U.S. economy?

Beijing has chosen to go for a scenario in which neither side can win. Why? By now it is apparent that the U.S. economy has remained prosperous while the Chinese economy is in a continuous downward spiral. Normal Sino–U.S. relations cannot drag the U.S. economy into an abyss, and China hardly has the means of “pressing home a victory.”

Does Beijing intend to stop before things go too far? If the Chinese regime wanted to save China’s economy, the most sensible step would be to put up a face of cooperation with the United States, rather than taking such a confrontational, lose-lose stance. However, the Chinese are not doing this; on the contrary, it has embarked on the path of strategic confrontation with the United States, and its plans for economic war has the clear political goal of interfering with the U.S. presidential election. This strategy has now come to the fore, and Beijing has brought an end to the era of polite Sino–U.S. relations.

Who Suffers Most in the ‘Lose-Lose’ Scenario?

Since Beijing has adopted this strategy, what exactly does it want to achieve? Beijing’s actions will undoubtedly hurt the Chinese economy in the short term. For example, cheap agricultural products from the United States cannot be imported, so China will have to look to other means to get the necessary soybean and corn imports. However, the price of soybeans exported from Brazil to China has recently increased by 70 percent, and within them include soybeans imported to Brazil from the United States. This has not only allowed Brazil to take advantage and make easy money, but also greatly increased the prices of China’s vegetable oil and animal feed, exacerbating China’s rapidly rising meat and food prices.

Many people both in China and abroad previously thought that for the sake of citizens’ livelihoods, the Chinese authorities would not take the “lose-lose” approach. Now it turns out that the Chinese people’s concerns about the deterioration of Sino–US relations have not shaken the determination of authorities to do precisely that. The reason is just as I wrote in “Distinguishing True and False in the Winning and Losing of US–China Negotiations,” my July 20 article published in The Epoch Times: “People who silently endure economic pressure cannot change the policies of the authorities. This is the source of the CCP’s ’resistance to economic pressure'.”

How the American people will react to the price hikes caused by the United States imposing tariffs on Chinese imports, as well as US stock market volatility and US corporate panic, remains to be seen. The United States will undoubtedly suffer some form of short-term pains from the dramatic restructuring of Sino–U.S. trade relations. Broadly speaking, people in democracies usually have less of what the Chinese call the “big picture, overall” concept, as when their lives are affected, they can express themselves through the next presidential election. Beijing dares to put both itself and the United States through a period of short-term pain precisely because the “resistance to economic pressure” that U.S. leaders can muster is weaker than that of China’s authoritarians. Beijing’s hope is to use economic war to shake the hearts of the American people and bring about change in the White House.

The long term pains that China and the United States face involve a great number issues that I will explain in my follow-up article “Why the Sino–US Trade War Has Escalated Into an Economic War: A Second Analysis of the Reversal in Diplomatic Relations.”

The Strategic Shift

Knowing that U.S. politicians have a relatively low tolerance for “short term” pain, while the Chinese Communist Party’s totalitarian system can ignore it, Beijing has changed its strategy from “delay and wait for change” to “create change by going on the offensive.” While capable of shrugging off short-term pain, the CCP’s main dilemma is how to deal with the long term pain caused by foreign firms and investors leaving China. For this, it has few options and no clear solution.

What is clear is that, if the CCP were to continue the path of Trump’s marginal tariff increases, its original plan of “dragging things out” would only become an irritating “long term pain” that not only does little damage to Trump, but might even consolidate his chances of re-election. But by “creating change by going on the offensive,” the CCP can bring about a surge in short-term pain that can impact the United States insofar as it lands a blow on Trump’s economic achievements and by extension sway voter sentiment to Beijing’s benefit.

However, by choosing the “lose-lose” route, Beijing has fully revealed its enmity towards the United States, and the empty talk of “China–U.S. friendship” no longer works even as a formality. Trump himself has already begun to ask on Twitter whether or not China is an enemy—a status that the CCP is responsible for creating. Under such circumstances, it remains to be seen how American voters will react to this series of events: Will their resentment of Trump grow, or will the president gain more support for his China policy?

Dr. Cheng Xiaonong is a scholar of China’s politics and economy based in New Jersey. He is a graduate of Renmin University, where he obtained his master’s degree in economics, and Princeton University, where he obtained his doctorate in sociology. In China, Cheng was a policy researcher and aide to the former Party leader Zhao Ziyang, when Zhao was premier. Cheng has been a visiting scholar at the University of Gottingen and Princeton, and he served as chief editor of the journal Modern China Studies. His commentary and columns regularly appear in overseas Chinese media.
Dr. Cheng Xiaonong is a scholar of China’s politics and economy based in New Jersey. Cheng was a policy researcher and aide to the former Party leader Zhao Ziyang, when Zhao was premier. He also served as chief editor of the journal Modern China Studies.
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