China has no choice but to agree to fix the problem of trade imbalance between the kingdom with the United States. The trade imbalance, which President Donald Trump calls unfair, hit a record US$375 billion in 2017. After rounds of talks and meeting between both countries, the U.S. and China have agreed to “substantially reduce” the trade imbalance.
Hence, the Chinese has agreed to significantly increase import from the U.S., hoping it will reduce its US$347 billion trade deficit with America. China does not want a global trade war, if they can help it. But neither did they commit any figure. They cannot announce to the world how much China is ready to commit for obvious reason.
If China commits a small figure, President Trump would send a tweet threatening a trade war. If China commits a large figure, President Xi Jinping would come under fire from his own people for being submissive to the Americans. Likewise, Trump needs a big win from this bilateral trade talks in order to boast the Republicans before the mid-term election.
So when White House Economic Advisor Larry Kudlow told all and sundry that China has offered to reduce its trade surplus with the U.S. by “at least US$200 billion”, therefore fulfilling Trump’s demands, all hell breaks loose. He said – “China’s come to trade; they are meeting many of our demands. I believe they want to make a deal.”
The Wall Street Journal reported that China’s delegation rebuffed American demands to commit to an exact deficit reduction figure, and the two sides bickered all night over the statement’s language. Chinese foreign ministry official has posted on Chinese state social media accounts disputed reports that Chinese officials had offered the US$200 billion reduction.
The trade negotiation is no longer about trade imbalance. It has now become a political subject because Trump eagerly wants to capitalize on the talks to score political points. It would reassert the U.S. dominance over China. More importantly, Trump can tell his supporters at rallies that his administration has won the trade war, something which his predecessors failed to achieve.
A US$200 billion reduction in the U.S. trade gap with China by 2020 was on a list of demands the Trump administration made earlier this month. The U.S. president badly needs to win this trade war if he decides to go for a re-election in 2020. A US$200 billion cut is more than half the US$347 billion trade deficit America is suffering now.
Obviously, President Xi Jinping cannot afford to be seen as the chicken in this game. The Chinese can only promise to boost its purchases of U.S. goods but not be seen as bending over. While the U.S. wants the Chinese to commit a number, the Chinese prefers to be vague about the whole thing as the rising economic power must not be seen as weak.
Perhaps the Americans have mistaken the Chinese culture. Perhaps Economic Advisor Larry Kudlow has misunderstood the real meaning when China says they will consider reducing the trade imbalance when he presented President Trump’s demand for the US$200 billion reduction in the U.S. trade gap with China by 2020. It was merely a polite way of rejecting such outrages demands.
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May 20th, 2018 by financetwitter
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