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

Beijing is likely to retaliate in a ‘targeted’ way with measures including excluding US firms from policies to open up, according to analysts

PUBLISHED : Saturday, 23 June, 2018, 7:03am
UPDATED : Saturday, 23 June, 2018, 9:38pm

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”.

More to US-China trade dispute than meets the eye

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.

In Trump’s trade war, US companies will be the first casualty

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.

Beyond measure or a dent to GDP growth? How a trade war with US could hit China

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.

China angry over Trump’s latest tariff threats but gives no clues about countermeasures

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.

China broke the rules of global trade – but for good reason

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.

Chinese companies in the US are repatriating profits as trade tensions rise, survey shows

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.

The US said it would release the list of the first lot of 818 Chinese imports worth US$34 billion on July 6, and another 284 products worth US$16 billion could be subject to tariffs following a review and public comment process. China matched the US, saying its tariffs on a list of 545 US goods, including soybeans and cars, worth US$34 billion would come into effect on July 6 and duties on another US$16 billion of imports would kick in later.

Additional reporting by Wendy Wu