In China–US Trade Dispute, Any Concession Is a Loss for Beijing

September 4, 2018 Updated: September 5, 2018

In late August, a Chinese trade delegation, led by China’s Vice Minister of Commerce Wang Shouwen, headed to the United States for a fourth round of negotiations.

It was generally expected that there wouldn’t be any meaningful results. The Chinese stance is presented in the article “A Long-Term View of China’s Historical Changes and the Current Sino–U.S. Confrontation—a Record of Dialogue With the Delegation of U.S. Congressional Aides” (hereafter referred to as “Dialogue Record”).

The Dialogue Record avoided addressing the disputes over intellectual property rights, showing the outside world that China had no sincere intention to resolve the issue. Meanwhile, the American side was not prepared to make any concessions. On Aug. 20, speaking to Reuters, President Donald Trump said that this round of trade consultations would produce only minimal progress, and that he had long-term plans for resolving the economic conflict between China and the United States.

China Refuses to Admit Its Intellectual Copyright Infringement

Chen Wenling, the Chinese representative in the Dialogue Record, fills multiple positions: chief economist of the China Center for International Economic Exchanges, deputy director of the Executive Board of the Council, deputy director of Academic Committee, and former director of the Research Office of the State Council. Her credentials indicate that the tone of this dialogue record represents that of the Chinese government. The document’s content concerns three main themes: China’s reform and opening up, China’s economic development, and Sino–U.S. relations.

The first, reform and opening up, focuses on the achievements made since 1978, particularly areas in which China has surpassed the United States.

For example, the Dialogue Record says that “China’s manufacturing output exceeded that of the United States for the first time in 2010. In 2010, China’s manufacturing output accounted for 19.8 percent of the world’s total. The United States fell to second place for the first time since World War II, accounting for 19.6 percent of the global manufacturing output. In 2016, China’s manufacturing output accounted for 25.5 percent of the world’s total.”

The second theme concerns China’s economic development. Notably absent is any attempt to address the United States’ criticism of Chinese theft of intellectual property as a means of bolstering its competitive strength. Instead, the Dialogue Record accuses the United States of fearing China’s strength and working to undermine it: “For a country striving to maintain its apex position, it is fundamentally wrong to maintain this status by suppressing other countries’ development.”

The Dialogue Record blames the United States for causing China’s overcapacity. Referring to the 2009 bailout issued by Beijing, it said that China’s $4 trillion investment stabilized the world economy and alleviated the financial crisis that following the subprime mortgage in the United States.

Third, the Dialogue Record emphasizes China’s peaceful development and criticizes the United States for its involvement in color revolutions and waging foreign wars.

In summary, the document asserts that China has blameless and all its misfortune is a result of the United States looking to start trouble. Chen Wenling concluded, saying she thought “that President Trump now regards China as the main target for attack and containment. This is choosing the wrong era, wrong direction, and the wrong opponent.”

During her discussions with the delegation of U.S. Congressional Aides, Chen named the United States’ imposition of tariffs on China as trade blackmail and a violation of WTO regulation.

Why Xi Is Reluctant to Give Way

China has been taking a firm stance in this Sino–U.S. trade war. Some observers believe that Xi Jinping has been led to adopt this mistaken policy by think tanks in both China and the United States.

The article “How to read summer grumbles about China’s swaggering leader,” published by The Economist on Aug. 9, states that according to inside sources, while Trump and Xi are quite friendly in private, Xi’s team listened to the opinions of the “wrong Americans.”

These “wrong Americans” include persons with longtime business dealings with mainland China, as well as Trump’s assistants and cabinet members, such as U.S. Treasury Secretary Steven Mnuchin. Various reasons led Xi to believe that as long as he made tactical concessions, he would be able to bribe the businessman-turned-president Trump—the method mainland China had always used to appease “angry foreigners.”

In early August, China began to denounce Hu Angang, the “teacher of the nation,” for misleading the Chinese Communist Party leadership. Hu had claimed that “China’s comprehensive national strength has totally surpassed the United States,” and published a report in April 2017 called “ Comprehensive National Power Assessment,” in which he argued that in terms of overall national strength, China had already surpassed the United States, and that by 2020, would be equivalent to 1.75 times that of the United States.

Hu’s work led to the conclusion that the development of China and the United States was a competition between two different systems, with the Chinese system being far superior to the American model. This conclusion became the subject of a tremendous ideological movement.

Never since the Cultural Revolution was an intellectual elite singled out for such promotion. It came as a surprise to many when the authorities suddenly gave up their crusade, since it was widely seen as a means of finding an enemy for Xi Jinping to fight. Why should the movement be brought to halt?

Only after the Dialogue Record was published was this question partially answered. The authorities actually did not object to Hu Angang’s ideas. They indeed believed that China had already overtaken the United States in some respects, and were about to surpass in others.

At the core of the U.S. sanctions against China is the latter’s large volume of intellectual property thefts, and its production of cheap, counterfeit products to flood American markets. “Made in China 2025″, which is based on this kind of tactic, has thus been perceived as a threat to U.S. national security. However, China flat-out refuses to admit fault — instead it brandishes a propaganda line that is commonly repeated throughout China: the United States is afraid of China’s strength, and so finds it necessary to try to restrain her.

So long as the issue of intellectual property remains unresolved, it will be difficult for China-U.S. negotiations to make substantial progress.

China Cannot Afford to Yield on Intellectual Copyright Infringement

The United States has two basic demands for China: one, to reduce exports to the United States and two, to immediately commit to stopping its widespread infringement of intellectual property rights. China is able to do neither.

If exports to the United States are reduced, the Chinese government’s huge foreign exchange reserves the envy of many countries — will shrink precipitously. If China were no longer to infringe on intellectual property rights, it would be tantamount to tearing down the foundation of  “Made in China 2025.” For China, conceding to the United States on either or both of these points would mean utter loss.

In the event that China refuses to give in and put up an obstinate resistance, the United States will add tarrifs, to which the Chinese can let the yuan depreciate. In this way, a small amount of Chinese goods can make it to export; here, the worst-case scenario still results in the evaporation of Chinese foreign exchange earnings.

But there is another advantage to not giving in. Though technology can no longer be stolen from the United States, it can still be extracted from foreign capital in other countries. The Chinese high-speed rail technology (proudly referenced in Dialogue Record) was taken and assembled from Japan, Germany, Canada, and other countries. On Oct. 8, 2010, Great Britain’s Financial Times noted in the article “How China Digests High-Speed Rail Technology” that by transferring high-speed rail technology to China, foreign rail companies have in just a few years created multiple low-cost competitors for themselves.

Let us further consider: China’s intellectual property rights violations affect all countries that possess technology worth stealing. If Beijing were to promise not to infringe on intellectual property rights from the United States in particular, it would be equivalent to telling other countries that this promise is only valid for the United States, and that China will continue to steal from them. It would be a blatant admission that China bullies the weak and fears the strong. Therefore, China’s choice to not concede in the trade war was the result of a studied calculation. It would be disadvantageous either way to agree to the two U.S. demands. By simply refusing to cooperate, the Chinese regime is trying to minimize the damage to itself.

Beijing Is Counting on the US to Elect ‘Good News’ in Mid-November

China is still biding its time. In my previous article, “Trump Attacks on All Fronts, Intending to Rewrite the Script of Globalization,” I talked about Beijing’s sand table calculations. The Party placed its hopes on three major points. Today, the situation has changed. Some prospects have become bleak, but others have changed for the better, so Beijing is still waiting confidently.

First, China hoped that countries across the world would join forces to contain the United States. Previously, it was hoped that the European Union would check the United States. Today, the EU has made it clear that it will stand on the side of the United States, which has also softened its tariff policy toward the EU. Knowing that it can no longer count on the EU, Beijing has placed its hopes on Turkey and other countries with emerging economies to oppose the United States.

The diplomatic bickering between the United States and Turkey triggered an economic crisis in Turkey, causing the lira to plunge by 40 percent. Turkish Prime Minister Erdogan harshly reprimanded the United States, proclaiming a boycott against all U.S. electronic products in retaliation for the economic measures placed against Turkey. He also called for countries not sanctioned by the United States to avoid trading the U.S. dollar and to use their own currencies in settling accounts. This is an attitude that China greatly appreciates. On July 26, the Industrial and Commercial Bank of China provided a $3.6 billion loan to the Turkish energy and transport sector.

The second point is the hope that the Republican Party, to which Trump belongs, will lose power in this year’s November midterm elections. The third point is that other rivals of the United States will continue to create new problems. According to mainstream media reports in the United States, Trump faces obstacles from all sides. More than a thousand chambers of commerce in the United States and Wall Street are vehemently opposed to the trade war. Meanwhile the Democratic Party is riding a “blue wave” as it has won many supporters in preparation for crushing the Republican Party in the midterm elections. Per such reportage, the “Trumpification” of the Republican Party has also led to internal division.

Two recent events have given China yet more cause for optimism. First, because President Trump has accused the U.S. media of being fake news, the media is furious over the labeling and perception of it as an public enemy. On Aug. 16, nearly 350 American newspapers (mostly belonging to a handful of major media groups) issued an editorial on the same day opposing President Trump’s attack on the media. It is common for media to criticize the president for a common fault, but to take coordinated action to denounce a president is a first in American history.

Second, Trump’s former private lawyer, Michael Cohen, filed a case with the Federal Bureau of Investigation and has reached a plea agreement with the federal prosecutor. Cohen admitted that during the 2016 general election, he was responsible for paying a number of hush fees to women who had affairs with Trump. Then, on Aug. 21, the Virginia jury convicted former Trump campaign manager Paul Manafort on eight counts of financial fraud. Although the charges in the Manafort indictment are not directly related to “Russia Gate,” U.S. public opinion generally believes this to be a test of credibility for Robert Mueller, the special prosecutor responsible for the “Russia Gate” investigation.

Of course, China also takes concrete actions. U.S. National Security Adviser John Bolton gave an interview with ABC News on Aug. 18, saying that not only Russia, but also China, Iran and North Korea tried to intervene in the U.S. 2018 midterm elections.

How much longer will this war of attrition continue? Only after the results of the U.S. midterm elections in early November will it be time to make a new assessment.

He Qinglian is a prominent Chinese author and economist. Currently based in the United States, she authored “China’s Pitfalls,” which concerns corruption in China’s economic reform of the 1990s, and “The Fog of Censorship: Media Control in China,” which addresses the manipulation and restriction of the press. She regularly writes on contemporary Chinese social and economic issues.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.