President Donald Trump is scheduled to meet with China’s leader Xi Jinping on Dec. 1 in Buenos Aires at the G-20 summit. Both have indicated that they are ready to talk about trade. Despite China being hard pressed to negotiate a trade deal with the United States, the possibility that the two countries make a truce on trade, I believe, is slim.
Latest economic data from China show its economy slowing down due to U.S. tariffs and the trade dispute. In the third quarter of 2018 China recorded its most sluggish growth in ten years.
In October, the deceleration sped up, and consumer confidence plummeted. Consumption of durable goods, such as automobiles, smart phones, and home appliances dropped significantly. The once red-hot real estate market also showed signs of cooling.
If the United States and China fail to reach a deal before 2019, the impact of the trade dispute on China will get worse. On Jan. 1, the 10 percent tariff on $200 billion worth of Chinese imports imposed by the Trump administration will rise to 25 percent, with the possibility of new tariffs on the remaining Chinese imports. These measures could dent the real GDP growth of China by 0.5 to 0.7 percent in 2019, according to some analyses.
Such an enormous economic risk would be sufficient to force reasonable parties to come to the negotiation table. But China is anything but reasonable.
China responded with a list of old promises, including buying more U.S. merchandise and helping reducing the U.S. trade deficit. As for the structural issues in China-U.S. trade, such as intellectual property theft, illegal subsidies, and non-tariff barriers for U.S. businesses, China showed zero interest.
“They are not close to a favorable deal on trade. Not in the same universe,” a U.S. government source told Reuters on Nov. 15.
One of the primary reasons that China has overplayed its hand in the trade dispute is that it underestimated the determination of the Trump administration to reset the Sino-U.S. trade relationship.
In the past, China repeatedly used the tactic of buying more U.S. goods in exchange for maintaining the status quo and almost succeeded every time. It must have thought Trump could be bought, too. But China sized up Trump completely wrong.
China probably hoped that the anticipated Democratic takeover after the 2018 midterm election would help rein in Trump, so that it could be off the hook on trade issues. Yet the takeover didn’t happen, as the Democrats failed to capture the Senate. Their performance in gaining seats in the House was historically average. If China’s trade negotiation strategy hinges on Trump being impeached and removed from the office by the Democrats in 2019, it badly needs a new one.
Additionally, China overestimated its economy’s strength. China has been the world’s factory for cheap products for decades. But due to rising costs, labor-intensive industries, such as shoe and apparel making, are moving to Southeast Asia. TV and gaming device makers are following suit. The tariffs create more incentives for the exodus.
In high-end manufacturing, such as computer equipment and electronics, China is heavily reliant on foreign imports. The most prominent example is chips (integrated circuits). Nearly 90 percent of the chips the country consumed in 2017 were sourced from overseas. Early this year, Chinese telecom giant ZTE had to cease operation following a sales ban imposed by the Department of Commerce. Without a lifeline from the Trump administration, ZTE would have been put out of business.
Finally, Some of the demands of the United States, such as knocking down the Great Firewall of China, are perceived as directly undermining the Communist Party’s rule in China. To cling to their power, the leaders of the Communist Party can’t afford to be perceived as weak, even when this means wrecking China’s economy.
The Chinese Communist Party is a totalitarian group. The interests of the top echelon are aligned with the party, not the country, certainly not its people. That the trade war may create hardship for Chinese people doesn’t mean much for the party leaders. They are not elected and can’t be held responsible by the Chinese people. As a result, Xi has no choice but to play hard ball with Trump. If he doesn’t, he won’t be at the helm for long.
Looking ahead, I seriously doubt the Trump-Xi meeting will produce any meaningful results. Short of economic catastrophe, China will not take the United States seriously.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
