Who Will Blink First In Renewed Trade War?

The United States and China have resumed and intensified their tariff war after the collapse of trade talks. What’s more, this renewed and escalated battle is becoming bitter and ugly, because it’s no longer only a fierce fight between the world’s biggest economies, but also a personal showdown between their leaders.

As Donald Trump and Xi Jinping cannot afford a deepening and long-lasting trade conflict, which will not just hurt their countries’ economies, but may also spread to other key areas of the world’s most vital bilateral relationship, sooner or later, either one or the other must make the first move to de-escalate or terminate it. The question is, who will blink first in this stare-down?

On May 10, a day after the trade talks broke down, the US hiked tariffs on $200 billion worth of Chinese products from 10% to 25%. Three days later, Beijing announced it would increase tariffs on $60 billion of US imports to 10%, 20% and 25%. On the same day, the Office of the US Trade Representative listed $300 billion more of Chinese goods, which is in essence all remaining imports from the Asian country, for possible 25% tariff levies. In 2018, China bought only about $120 billion worth of US goods while selling $540 billion worth of its products to the US.

While – or, perhaps, because – it cannot match the United States’ tariffs dollar by dollar, during the last few days, Beijing has allowed or encouraged its officials and, especially, state-run media to adopt an antagonistic and nationalistic posture vis-à-vis the US.

As reported by CNN and other international outlets, Xinhua News Agency and the People’s Daily – the Communist-ruled country’s two main mouthpieces – published a strongly worded editorial (in Chinese), which argued that the US was fighting for “greed and arrogance” while China only fought to defend “its legitimate rights and interests.”

The piece also made another distinction, claiming that America’s trade war “is the creation of one person and his administration who have swept along the entire population of the country. Whereas the entire country and all the people of China are being threatened.” That’s why, it vowed: “For us, this is a real ‘people’s war.” Though it didn’t mention Trump by name, the comment was a direct rebuke of, and a personal attack on, the US president.

A defiant statement read during the primetime news on state broadcaster China Central Television likewise claimed the country would “fight for a new world” and said: “As President Xi Jinping pointed out, the Chinese economy is a sea, not a small pond. A rainstorm can destroy a small pond, but it cannot harm the sea.”

Without doubt, such fiery comments are mainly aimed at galvanizing support and stoking patriotism at home as those directed at international audiences by Chinese officials and state run outlets are less aggressive and confrontational. That said, they still offer a defiant message.

This Tuesday, a Chinese Foreign Ministry spokesman said: “China doesn’t want a trade war, but is by no means afraid of fighting one. If someone brings the war to our doorstep, we will fight to the end. China never succumbs to external pressure.”

In a commentary headlined “China will never bow to any extreme pressure” a day earlier, the English-language edition of the People’s Daily said Beijing “will never yield to the extreme pressure from the US, or compromise on matters of principle.” According to this piece, Washington “wielded the tariff stick once again because of its misjudgments on China’s strength, capability and willpower.”

In its editorials on May 13 and 14, the China Daily, another key state-run outlet, held the same view, stressing that “China does not want to be dragged into a trade war with the US, but it is not fearful and, if forced into one, it will safeguard its national interests.” That’s why, it warned, “the US should not fancy that it can force China to give in” because “China will not knuckle under.”

On May 12, the Global Times, a well-known tabloid published by the People’s Daily, told the US that its “maximum pressure policy is useless” as Beijing “has adhered to its principles, not fearing the trade war while trying to crumble the US’ provocations with stout endurance.”

China’s fiery rhetoric in recent days is a reaction not just to the Trump administration’s decision to raise tariffs on Chinese goods but also to his numerous criticisms against China and its leadership. These included the Republican president’s accusation of his Chinese counterpart reneging on the trade deal both sides had negotiated and agreed in recent months, indirectly but pointedly telling Xi Jinping that “you had a great deal … & you backed out.”

Yet the belligerent comments by Chinese officials and state media of late aren’t completely new. For several months last year, when Trump started and then escalated his trade war against China, through its officials and its state-controlled media, Beijing adopted the same rhetoric.

For instance, in a bellicose editorial headlined “China won’t cave in to Trump’s trade bluster” in March last year, the Global Times said the “US has been wielding sticks worldwide over the past year. Washington needs to be taught a real lesson and such a lesson can only be taught by China, the world’s second-largest economy.”

A month later, when Trump instructed the Office of the US Trade Representative to consider slapping an extra $100 billion in tariffs on Chinese goods, a Foreign Ministry spokesman stated that China was “definitely unafraid of a trade war even though [it did not] seek one” and would “take new comprehensive countermeasures to resolutely safeguard [its] interests … at whatever cost.”

An editorial by the People’s Daily in early August, when the US threatened raising tariffs to 25% on $200 billion worth of Chinese goods, vowed that the People’s Republic of China “will not surrender to US threatening tactic[s]” and its “trade blackmail.” This official mouthpiece of the Communist Party of China even stringently accused Trump of starring in his own “street-fighter-style deceitful drama of extortion and intimidation.”

In blunt remarks later that month, Cui Tiankai, the PRC’s ambassador to the US, said Washington should “give up the illusion” that his country “will ever give in to intimidation [and] coercion.”

But by late September and early October last year, Chinese officials and media notably tempered their rhetoric. Unlike a month before, Cui fervently talked about and called for cooperation between the two countries.

The pugnacious Global Times even sounded unusually cooperative, writing: “China knows how powerful the US is, and China doesn’t want any strategic confrontations. But the US should respect China’s right to development.”

Beijing by then opted for a reconciliatory tone not only because a tough Trump showed no sign of bluffing but also, and more important, because China’s economy was hit hard by his tariff war.

As noted, in a rare admission in March this year, Chinese Premier Li Keqiang even acknowledged that trade frictions with the US “had an adverse effect on” China’s economy. That was a key factor why, in his Government Work Report, China’s second highest-ranking official announced a GDP growth target of 6-6.5% for 2019, which is the country’s lowest rate of growth in nearly three decades.

As it couldn’t afford a prolonged trade war with the world’s largest economy, in early December, China had to soften its posture, agreeing to strike a truce and to negotiate a trade deal with Washington. According to the White House, Beijing agreed “to begin negotiations on structural changes with respect to” a wide range of issues that Washington has demanded, such as “forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture.”

Without doubt, an escalating trade war will badly affect the two countries. Yet many indicators show that it has, so far, inflicted more pain on China than on the US.

If its subdued response to Trump’s trade war in late 2018 is any guide, China – or, more precisely, its paramount leader, Xi Jinping – may again change tone and tack, adopting a softer posture toward the US on trade matters. There are many other reasons for such a possibility.

One of these is that, while people may disagree with many of Trump’s proclamations and actions, they hardly disagree that when it comes to trade disputes with China, he is very tough and unusually consistent.

To this point, the US has followed through on all of his tariff threats against the Asian power. If a trade deal is not achieved, it’s very likely – if not certain – that his administration will impose 25% levies on the remaining $300 billion worth of Chinese imports. Should this happen, it would be difficult for China to hit back, as it exports four times more to the US than the latter does to China. More important, such an all-out trade war would be a huge blow for China’s economy.

Unlike Trump, Xi holds a tight grip over all aspects of China – from the 1.3-billion-people country’s politics, economy and military to its civil society, media and public opinion. But that doesn’t mean he is completely immune to pressure. If economic growth slows down significantly, he will face great discontent and dissent within the CPC and from society.

On this reading, it’s likely that Xi’s China – rather than Trump’s America – will blink first in their renewed trade conflict.