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Aug 27, 2019
Economics: Wary of Trump’s Flip-Flops, China Prepares for the Worst on Trade
Perhaps nobody was more surprised to hear that China had called President Donald Trump’s administration to restart trade talks than the government in Beijing itself.
After
a weekend of confusing signals, Trump’s credibility has become a key
obstacle for China to reach a lasting deal with the U.S., according to
Chinese officials familiar with the talks who asked not to be
identified. Only a few negotiators in Beijing see a deal as actually
possible ahead of the 2020 U.S. election, they said, in part because
it’s dangerous for any official to advise President Xi Jinping to sign a
deal that Trump may eventually break.
In off-the-cuff remarks to reporters at the Group of Seven
summit in France on Monday, Trump claimed that Chinese officials called
“our top trade people” and said “let’s get back to the table.” In
subsequent appearances he portrayed the outreach as evidence China was
desperate to make a deal: “They’ve been hurt very badly, but they
understand this is the right thing to do.”
It all made for splashy headlines and momentarily boosted
stocks, but nobody in Beijing officialdom appeared to know what he was
talking about. Even worse, his efforts to depict China as caving in
negotiations actually confirmed some of their worst fears about Trump:
that he can’t be trusted to cut a deal.
Donald Trump speaks at the G-7 on Aug. 26.
Photographer: Nicholas Kamm/AFP via Getty Images“Trump’s
flip flop has further enlarged the distrust,” said Tao Dong, vice
chairman for Greater China at Credit Suisse Private Banking in Hong
Kong. “This makes a quick resolution nearly impossible.”
Two
Chinese officials likened the country’s approach to the U.S. during the
Korean War, saying it consisted of fighting while talking, and using
fights to speed up talks. China has prepared contingency plans in case
of a no-deal scenario, three officials said, including putting U.S.
companies on its unreliable entity list and stimulating the economy.
China’s foreign ministry on Tuesday again said it was unaware
of the phone calls mentioned by Trump, reiterating a statement
immediately after his remarks. One of the first to call out Trump was Hu
Xijin, chief editor at the Communist Party-backed Global Times
newspaper, who said Monday that the U.S. president was exaggerating the
significance of low-level talks and China’s position hadn’t changed.
While
officials in Beijing are still willing to engage in trade talks, they
are concurrently girding for a decoupling from the world’s biggest
economy -- an effort made all the more acute when Trump “ordered” U.S.
companies via Twitter to look for alternatives to China. After trade
talks broke down in May, Xi renewed calls for China to pursue
“self-reliance” in key technologies and even called on citizens to join a
“new Long March.”
“A gradual decoupling is happening de facto
because companies have to make alternative plans when there’s so much
uncertainty,“ said Tim Stratford, chairman of the American Chamber of
Commerce in China and a former assistant U.S. trade representative.
The
conflict has inflicted pain on China, exacerbating the slowest economic
expansion in almost three decades as authorities also seek to keep a
lid on debt and financial stability risks. Still, officials have room to
loosen policy further: The central bank last week unveiled a major
reform designed to help lower borrowing costs, and the government is considering allowing provinces to issue more bonds for infrastructure investment.
Politically,
Xi doesn’t have much wiggle room to indulge Trump. Hardliners have
become more emboldened each time Trump has shattered a temporary truce
and hit China harder, from raising tariffs to blacklisting leading tech
company Huawei Technologies Co.
While China has been open to a
deal that includes greater purchases of U.S. agriculture goods, it’s
politically unfeasible for Xi to sign off on an agreement that leaves
the punitive tariffs in place. He also can’t agree to privatize parts of
the economy that are crucial to the Communist Party’s grip on power,
such as certain state-owned enterprises.
Party Legitimacy
“For
China, it is about legitimacy of the Party’s rule -- economic
performance and nationalism, especially about the rise of the Chinese
people on the world stage,” said Suisheng Zhao, executive director of
the Center for China-U.S. Cooperation at the University of Denver’s
Graduate School of International Studies. “Both are at stake, and China
can’t afford to lose. China is not likely to make any substantial
concessions currently.”
For now, the two sides are technically
supposed to meet next month to resume trade talks. From China’s
perspective, progress primarily depends on Trump’s political
calculations heading into the 2020 election -- and even then they will
want iron-clad reassurances he makes good on his word.
Trump may be realizing that his China-bashing will be
“disastrous” for the U.S. economy and American companies, according to
Charles Liu, a former economic negotiator with the Chinese delegation at
the United Nations and founder of Hao Capital.
“The only thing
that conceivably has changed is that Trump is under a lot of pressure to
make a deal -- not the Chinese, Trump,” Liu said. “The Chinese position
will be that if you want to talk, the door is always open, but this
bullying is not going to be helpful for the discussion.” — With assistance by Peter Martin, Kevin Hamlin, Miao Han, Dandan Li, Steven Yang, and Ying Tian
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