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Politico | How Trump’s trade war is driving China nuts

Chinese leader Xi Jinping has reacted to American pressure with a level of desperation that is good for neither Washington nor Beijing

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The headwinds heading China’s way are unmistakable, particularly with Donald Trump, at right, threatening to up the tariff ante. Photo: AP

This story is published in a content partnership with POLITICO. It was originally reported by William Pesek on politico.com on October 16, 2018.

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Five years ago, China’s Xi Jinping rocked the Communist Party establishment by pledging to let markets play a “decisive role” in decision making. Reformists rejoiced as President Xi signalled a revival of Deng Xiaoping’s pro-capitalism revolution.

Things have not gone as planned. First, Xi slow-walked steps to reduce China’s reliance on runaway credit, debt and an antiquated state sector. He prioritised short-term growth over long-term upgrades. And then Donald Trump came along to imperil both objectives.

Watch: Chinese hope for swift end to US-China trade war

Initially, Xi’s government figured the president was bluffing. Beijing’s calculation was that, sure, Trump might slap some tariffs on Chinese goods, but it’s a mere negotiating tactic – his “art of the deal” writ large. After all, past American presidents had often attacked China on the campaign trail – only to make nice while in office.

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Xi’s men held it together as Trump slapped taxes of 25 per cent on steel and 10 per cent on aluminium. They figured Trump’s initial attack on US$50 billion of Chinese imports in June would satisfy Peter Navarro and other protectionist voices in the White House.

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