Calling it “unfair retaliation”, President Donald Trump announced he has instructed the United States Trade Representative to consider US$100 billion in additional tariffs against China. Trump’s latest action is in addition to the 25% tariff on 1,333 Chinese products worth US$50 billion. This means the U.S. is targeting a combined US$150 billion tariffs on China products.
It’s quite puzzling why Trump called China’s retaliation unfair. Perhaps he was hoping the Chinese would quietly suck it up and surrender tamely. Then, he could declare victory over the trade war against China. He could then tell all and sundry how easily it was to defeating the Middle Kingdom. He would then proceed to insult the past U.S. presidents on their incompetency and weakness.
Obviously, Trump retaliates due to China’s retaliation, which makes him lose face. The U.S. president cannot tolerate losses and certainly cannot accept he could easily be intimidated by the Chinese. He wants to win every time so that he could boast what a great leader he is. And China’s retaliation – aiming at American farmers – was specially designed to hurt his support base.
Naturally, Trump couldn’t let China’s counterattack to affect either the coming November midterm elections or his chance of 2020 presidential re-election. The fact that Beijing just took 11 hours to retaliate against the United States for proposing tariffs on some 1,300 Chinese products speaks volumes how humiliating it would be had Trump refused to retaliate.
However, like Trump, President Xi Jinping can’t afford to look weak too, especially in the eyes of 1.4-billion citizens of China. He has just been promoted as the “Emperor of China”. It would be political suicide if Xi allows himself to be bullied by an American leader. And as the powerful emperor, Xi decisively unleashed his weapon against the U.S. soybeans and agriculture sector.
Hence, after Trump proposed to slap another US$100 billion on Chinese products because he can’t lose face after the so-called “China’s unfair retaliation” (makes you wonder if there’s such thing as “fair” retaliation); China said it would counter U.S. protectionism “to the end, and at any cost”. It appears the game of “retaliation on retaliation” will continue until somebody blinks.
Wait a minute!! Doesn’t this look like the war of words between North Korean badass Kim Jong-un and U.S. President Donald Trump? Yes, it certainly sounds familiar. In spite of the threats, proposals and promises from both America and China to strike and counter-strike, none of them has actually started imposing the tariffs.
In fact, U.S. companies have until May 22 to raise objections, and a public hearing on the issue is scheduled for May 15 in Washington. Thereafter, both nations will start negotiating to reach a settlement, a process which can take at least 60 days. And China said it would only start imposing its tariffs after the U.S. started doing so.
The reason why U.S. and China are still at the stage of firing empty rhetoric at each other is the same as those between Trump and Kim. Like the threat of nuclear war between Pyongyang and Washington, the trade war between Beijing and Washington is equally disastrous when it happens. Both Trump and Xi are competing to show they have the bigger “trade button” to push.
In a full-blown trade war, China has more to lose economically. That’s why pro-Trump supporters are convinced the U.S. president will win. After all, it is China who enjoys US$375 billion trade surplus, not America. Nearly 20% of Chinese exports go to the United States. It sold US$506 billion in stuff and services to the U.S. last year (2017), while the U.S. only sold US$130 billion to China.
But unlike nuclear war between Kim and Trump, this dispute between China and the U.S. isn’t just an economic fight. This is also a political fight where Emperor Xi can easily outrun President Trump. Xi has been granted permission to rule China for life while enjoying total control of mainstream news media. Trump has none of those privileges.
Xi also sits on a pile of US$3 trillion cash while Trump needs to borrow money by selling American debt papers to fund his projects, not to mention begging Congress for certain approvals. The Chinese leader can react quickly and give instruction to subsidize soybean prices in order to shield Chinese consumers from impact of tariffs.
The same cannot be said about Trump. He is already facing backlash from Wall Street, from CEOs of companies affected by the trade war, from soybean farmers in the Midwest and even from his own Republican lawmakers who are furious with him toying with tariffs. Unlike the Americans, the Chinese aren’t constrained by the rule of law.
There’s little doubt that China can withstand much more than the U.S. in the next 12 months. China has more levers it can pull to punish the United States, and they are already talking about buying crude oil from other countries instead of the U.S. Trump might think as the POTUS, he could bring China down to its knees without a sweat.
In reality, the entire Chinese politicians are facing pressure to project their country as a world power. And that political pressure is more critical than economic pressure. There’s no way President Xi will roll over or bend over so that President Trump could screw him. Trump managed to get Saudi King Salman kowtowing to him. But that’s not going to happen with Xi Jinping.
Donald Trump desperately wants this trade deal to be over soon. But Xi Jinping wants to play a long game. China wants the American farmers and winemakers wondering why they are casualties in a fight against China stealing intellectual property and industrial know-how. Well designed, the Chinese tariffs would impact about 2.1 million jobs that are spread out over 2,783 US counties.
And 82% of those counties voted for Mr Trump in the last election. Xi’s strategy is to get American farmers, Wall Street, CEOs and Republicans in Congress to be absolutely angry with Trump so that he could be pressured to back down. For now, experts believe China will give some crumbs – a few small concessions – to Trump so that he can declare victory.
Chinese Premier Li Keqiang said that China is prepared to ease market access for U.S. companies and stop forcing foreign companies to transfer technology. Trump is expected to take the deal and declare victory, telling all and sundry that he has done more for America against China than his predecessor – Obama, Bush or Clinton.
Other Articles That May Interest You …
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- U.S. Household Debt Hits Record $12.84 Trillion – China Top Owner Of I.O.U. Papers
- A US-China Trade War About To Happen – Here’s Why The Yankees Can’t Win
- U.S. Debt – How Much Does Each American Owe?
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April 7th, 2018 by financetwitter
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