China has more to lose economically inan all-out trade war. The Chinese economy is dependent on exports, and nearly20 percent of its exports go to the United States. It sold $506 billion instuff and services to the United States last year. In contrast, the UnitedStates sold $130 billion to the Chinese.
“In a serious economic battle, the U.S. wins. There is noquestion about it,” said Derek Scissors, a resident scholar atthe American Enterprise Institute who has helped advise the administration onChina.
But this isn't just an economic fight, it's also political, andthere’s a strong case that President Trump would be less able tosustain a protracted conflict than the Chinese — especially with the 2018midterm elections coming.
Chinese President Xi Jinping runs a communist country that hasjust granted him theability to rule for life. He controls themedia in his country and is also sitting on top of about $3 trillion in surpluscash.
All of this means Xi can react quickly to Trump. He caneven aid Chinese companies that get hurt in the coming months andsubsidize soybean prices so Chinese consumers don't face massive sticker shockat the store. The Chinese used similar tactics during the global financialcrisis of 2008 and 2009, spending heavily from their surplus reserves to stimulatetheir economy and insulate their people from pain. The Chinese cashreserves are not as large now, but they still have more than the United Stateshas.
In2018, “China can withstand much more than the U.S.”
Trump doesn't have it so easy. He's already getting phone callsfrom Republican lawmakers who are angry at what he's doing with the tariffs. OnThursday evening, GOP Sen. Ben Sasse of Nebraska accused the president ofhaving "no actual plan to win right now"and "threatening to light American agriculture on fire."
Trump faces backlash from Wall Street, fromexecutives of companies such as Boeing and from soybeanfarmers in the Midwest, many of whom votedfor Trump and feel betrayed. Some GOP leaders fear Trump's actionscould costthe party seats in the 2018 midtermelections.
“Within the next 12 months, China can withstand much more thanthe U.S. can withstand,” said Evan Medeiros, managing director atthe Eurasia Group and a former senior adviser to President Barack Obama onAsia. “The Chinese aren't constrained by the rule of law or a representativedemocracy.”
While much of the focus so far has been on tariffs — Trump hasthreatened to put tariffs on about $150 billion worth of Chinese goods andservices, and China has respondedso far with threats of tariffs on $50 billion of U.S. goods — China has more levers it can pull to punish the UnitedStates.
The Chinese could stop cooperating on North Korea, theycould sell some U.S. debt to roil markets and they could make life harderfor U.S. companies operating in China, such as Nike, Disney or Apple.These Chinese actions are seen as unlikely, especially selling U.S. Treasurys.For the Trump administration, corresponding moves aren't even on the table,as the U.S. government doesn't have as much direct control over companiesoperating within its borders.
Trump is in a tricky situation. He has long argued the U.S. isalready in a trade war with China and that the U.S. has been getting attackedfor years. He appears ready for a fight. As his press secretary SarahHuckabee Sanders said Wednesday, "We may have a little bit ofshort-term pain, but we're certainly going to have long-term success."
He is also feeling confident after his administration renegotiatedthe South Korean free-trade deal togive U.S. automakers greater access to that market. But South Korea is theworld's No. 11 economy, and the country depends on the United States formilitary aid. China is the No. 2 economy, and it does not feel the same degreeof pressure to give in to Trump.
Domestically, Chinese politicians face pressure to project theircountry as a world power, making rolling over for a bellicose U.S. president awildly unpopular proposal.
“There is no way on earth China can be seen to be kowtowing tothe U.S. on this. Xi cannot say: All right, Trump threatened us, so we'dbetter give in,” said Phil Levy, a senior fellow at the Chicago Council onGlobal Affairs.
Chinastrikes back at Trump's political vulnerabilities
The surprisingly swift and strong reaction from China this weekseemed to be a message to Trump that the Chinese think they can play a longgame.
Trump has now threatened just over $150 billion in tariffs --or, to put it another way, he's threatened taxes on about 30 percent of thegoods and services the Chinese sell to the United States. It's unlikelyto damage the overall economy significantly,but it's getting to the point where American consumers are likely to facehigher prices on televisions, shoes, clothes and possibly even iPhones.
And certain places in America are about to feel great pain ifthe Chinese follow through with their threats to retaliate. It's hard forfarmers and winemakers to understand why they are casualties in a supposedfight against China stealing intellectual property and industrial know-how.
The Brookings Institution looked at all the products China hasthreatened to put tariffs on so far. They would affect about 2.1 million jobsthat are spread across 2,783 U.S. counties. Eighty-two percent of thosecounties voted for Trump in the last presidential election.
“Xi is probably doing a more rationale analysis of the situationthan the Trump administration seems to be doing,” said J. Stapleton Roy,who was U.S. ambassador to China under presidents George H.W. Bush and BillClinton. “The Trump administration doesn't seem to grasp the fact that they aredamaging the wrong people (the farmers)” in this fight.
Whatdoes “winning” look like?
A key problem for Trump is that he doesn't have clearand coherent demands of China. He and his team talk about three problems: thetrade deficit, Chinese intellectual property (IP) theft, and China's industrialpolicy (known as “Made in China 2025”).
But there's no specific request, and the lack ofone is allowing the Chinese to play the victims in a scenario where theUnited States is supposed to be trying to correct years of wrongs.
“I want the U.S. to do more against China, but I want theU.S. to do more with a plan,” Scissors said. “We need veryspecific asks of the Chinese. Instead, we just say, ‘we want you to change.’ ”
The president and his team sometimes say different things abouttrade and what the goals are. Trump likes to use confusion as a negotiatingtactic, but it also opens up more ways to “win.”
“Trump can probably be bought off withsome package of goods to reduce the trade deficit. His advisers want China torewrite its entire industrial policy,” Medeiros said.
Whatthe endgame looks like
Trump has famously said a trade war will be “easy to win.” Xiisn't saying that. Xi has made it clear he doesn't want a trade war, but hewill respond to anything Trump does. Xi seems to be setting himself up for aneasier political win if anything goes sour on the economic front.
But in politics, Trump has proved himself a skillful salesman.Many strategists and longtime foreign policy experts say the most likelyscenario is Trump gets a few small concessions from China and declares victory.
Chinese Premier Li Keqiang said last week that China is preparedto ease market access for U.S. companies and stop forcing foreign companies totransfer technology. If Trump gets those kinds of concessions in writing,he would be able to say he did more for America against China than Obama,Bush or Clinton.
But those changes would do little to alter the recordU.S. trade deficit with China or to deter China from plans to gohead-to-head with the United States in many high-tech sectors soon. If Trumpwants those major concessions, he has to be ready to go much harder against theChinese.
So far, Xi appears to be betting that Trump will cave topolitical pressure before that happens.
a granny in sd
I truly hope the trade war takes off so those Dump voters in thesoy and pork producing states get to enjoy their darling prez. I want to seehim go on his road show after 6 months of the Chinese tariffs.
"Many strategists and longtime foreign policy experts say themost likely scenario is Trump gets a few small concessions from China anddeclares victory" I guess it is time to eye some stocks that may gain fromthe concessions, they must be in their low points now and soon to soar.
How many among us are those of us who discuss 'trade deficits','made-in China' , 'theft of IP' and are willing people who throng to theWalmarts, Home-Depots, and such to buy 'made-in-China' productsbecause of one reason or another? How many talk about 'debt' but are unwillingto sacrifice and spend more on 'buy American' for products made in America?
The US shot itself in the foot when US manufacturers were allowedto take business (and jobs) to foreign soil where labor was cheaper. Now the USshoots itself in the other foot by levying tariffs against the countries thatmanufacture so much of what American consumers have come to rely upon. Is therea silver lining in all this? Perhaps the next generation will grow up lessmaterialistic and more appreciative of the rewards to be had from hard work.Because for the 'other 99%' there are a lot of hard times ahead.
While I share the concern about a possible trade war, we can`tkeep ignoring a 300+ billion dollar trade deficit with China, I can`t help butadmire the Presidents willingness to take on the issues he was elected topursue. Previous administrations loaded with egg heads, fresh from think tanksurged caution as their brilliance saw all possible negative effects of policychange. The result to often was "don`t just do something, standthere". President Trump, I am sure,is under the same type of pressure butso far he seem`s to be willing to accept some short term pain for long termbenefit. Our greatest Presidents were men of action and trusted their instinctswhen making difficult choices. Presidents Lincoln, Truman and Reagan come tomind. President Trump so far has made good progress in many areas. I am hopinghis position on trade will be for the better. I find it disturbing that so manyin this country, and certainly the media ,seem to root for his failure onvirtually every position he takes, shame!