China talks tough but treads warily in tackling Donald Trump’s trade threats

Beijing is talking tough in the face of trade threats from US
President Donald Trump, but its options for retaliation could be limited
as it seeks to avoid an all-out trade war with America, analysts say.

Both Chinese and US officials are making last-ditch efforts to
prevent a raft of tariffs from taking effect early next month, and
Beijing has refrained from announcing any specific measures to retaliate
against Trump’s latest threats this week.

The Chinese government does not want to show any weakness as it comes
under pressure from the United States, its biggest geopolitical rival,
and much of the rhetoric coming from the leadership and state media is
about China fighting a trade war “to the end”.

Yet a tit-for-tat approach with the US could escalate tensions into
an economic “cold war” between the world’s two biggest economies, and it
could spill over into areas beyond trade, potentially derailing growth
and undermining social stability in China, observers say.

“The recklessness of Trump is a new challenge for China … he is
dismantling a globalised trade system that has been running for three
decades,” said Sun Lijian, an international finance professor at Fudan
University in Shanghai.

He added that the best way for Beijing to deal with Trump’s “personal
heroism” was to give him the cold shoulder and to avoid hasty
engagement with him.

More broadly, Sun said Trump was tearing up the rule book on
“globalisation” that has helped the Chinese and global economies for
decades, and that Beijing had to prepare so it could cope with any
potential impact.

The government’s real concern over a trade war with the US is not
about the direct losses in exports or jobs, but China’s role as a key
part of the global economy. With hopes fading for a last-minute
compromise between Beijing and Washington before the first round of
tariffs kick in, President Xi Jinping has been sending the message that
China will remain open for business.

At a round-table summit of the Global CEO Council, a club of foreign
executives, in Beijing on Thursday, Xi urged them to fight against
“protectionism, isolationism and populism”, without naming the US or
Trump. He also promised to open China’s market further to foreign
investors.

“The international community is a global village and should not
engage in zero-sum games,” Xi was quoted as saying by Xinhua, hinting
that China was reluctant to lock horns with the US in a trade war.

US business delegates at the summit included David Abney of UPS,
Pfizer’s Albert Bourla, Arnold Donald from Carnival, Cargill’s David
MacLennan, Hamid Moghadam of Prologis, Thomas Pritzker of Hyatt and
David Solomon from Goldman Sachs, according to images in state media
reports and on social media.

Vice-Premier Liu He, who has led recent trade talks with Washington, was also at the meeting.

Efforts by both sides to defuse the tensions are continuing. Sources
told the South China Morning Post that one of Beijing’s key negotiators,
Wang Shouwen, had spoken with US businesses in China seeking a
last-minute compromise. National Economic Council staff in Washington
have meanwhile contacted former US government officials and China
experts in recent days trying to assess the chances for high-level talks
in the next two weeks that would include Vice-President Wang Qishan,
Bloomberg reported, citing unidentified sources.

The US has insisted that China’s “economic aggression” must change. A
report from the White House this week argued that China’s growth was
achieved “in significant part through aggressive acts, policies and
practices that fall outside of global norms and rules” which “threatens
not only the US economy but also the global economy as a whole”.

Meanwhile China’s foreign and commerce ministries and official media
blasted the US in recent days, accusing it of destroying the global
trade order after Trump on Tuesday said he would target another US$200
billion of Chinese products with a 10 per cent tariff if Beijing hit
back against its 25 per cent duty on US$50 billion of imports from
China.

But there have been few specifics given in Beijing’s responses, with
the Ministry of Commerce vowing to take “quantitative and qualitative”
measures to fight Trump’s latest threat – suggesting China could
retaliate with something other than tariffs.

That has fuelled speculation about what China could do to inflict
pain on US businesses, ranging from targeting firms in inspection raids
to encouraging boycotts of American goods, as it has done with
Philippine and South Korean products in the past.

But although China has fought back loudly since the first round of
tariff threats last week, it has been restrained about taking action.

Ding Yifan, a senior researcher with the National Strategy Institute
at Tsinghua University who used to work for the cabinet’s Development
Research Centre, said Trump had pushed China into a corner and it had to
stand up for itself.

“If it’s a looming trade war, China shouldn’t made the appeasement
mistake of [Neville] Chamberlain,” Ding said, referring to the former
British prime minister’s failed policy of accepting Adolf Hitler’s
demands in 1938 in an attempt to avoid a war.

Ding added that China was in no hurry to escalate the trade war because time was on its side.

Tu Xinquan, a trade expert at the University of International
Business and Economics in Beijing, said China’s measures targeting US
firms could be limited.

“China may not kick out US businesses operating in China, but it
could exclude US firms from its latest promises to open up,” Tu said.

Beijing’s response was more likely to be “targeted” instead of a
full-blown attack on American businesses, according to Li Chaomin from
the public policy and governance school at the Shanghai University of
Finance and Economics.

“China will try to hit back at the minimum cost,” Li said.

When Trump announced last week it would slap 25 per cent tariffs on
US$50 billion worth of Chinese imports, China immediately hit back with
the “same scale and same intensity”, imposing 25 per cent duties on
US$50 billion worth of US goods.