Earlier this month, the United States imposed tariffs on US$34 billion worth of Chinese imports. President Trump it was a punishment for Chinese theft of IP (intellectual property) and other unfair trade practices. Amusingly, Trump warned China not to retaliate. Immediately on the same day, China did exactly that – slapping taxes on the same value of U.S. products.

 

In retaliation to Beijing’s retaliation, Trump has requested the United States Trade Representative to identify US$200 billion worth of Chinese goods for additional tariffs at a rate of 10%. And if China dares to retaliate again, Trump will pursue another US$200 billion of Chinese goods. Trump will win this poker game simply because he has more chips on the table than Xi Jinping.

 

Last year, U.S. exports to China were only US$130 billion while imports from China were US$506 billion, hence the US$375 billion deficit. In other words, Trump’s threat of US$250 billion tariffs cannot be matched by Beijing. At most, China can only threaten to slap tariffs on US$130 billion worth of American goods. President Xi Jinping will blink first and lose.

But now, President Trump has a different thought about the trade war with China. Trump said he is willing to slap tariffs on every Chinese good imported to the U.S. should the need arise. In essence, he is ready to impose tariffs on US$505.5 billion (£386 billion, RM2 trillion) – the total value of Chinese goods imported into the U.S. last year.

 

“I’m ready to go to 500,” – the president told CNBC’s Joe Kernen in a “Squawk Box” interview. In other words, Donald Trump is ready to “sailang (show hand)” in the poker game with Xi Jinping. He said – “I’m not doing this for politics, I’m doing this to do the right thing for our country. We have been ripped off by China for a long time.”

 

The United States has already brought the dispute over the retaliatory tariffs at the World Trade Organisation (WTO) on Monday, along with those imposed by the European Union, Canada, Mexico and Turkey in response to new US duties on steel and aluminium. And Mr. Trump doesn’t care about the potential of stock market crash as a result of his action.

China, on the other hand, appears to be lost, or pretends to be lost, in the game. Quietly, they have gone back to the drawing board. In what could be its pragmatic move, Beijing has directed state media to watch how they report on U.S. President Donald Trump. A source said – “It’s been said that we should not use aggressive language for Trump.”

 

The edict from President Xi Jinping on media outlets was not to make vulgar attacks on Trump to avoid “making this a war of insults”. Chinese officials and state media have attacked the trade policies of the Trump administration but not the president personally – a move seen as an attempt to avoid antagonising Trump and further complicating negotiations.

 

President Xi Jinping is preparing for the next stage of trade war with America after the gathering and consultation with the Chinese Communist Party retired and serving political leaders. The annual “Camp David” summer retreat at the seaside resort of Beidaihe is scheduled to be taking place some time around the first week of August, after Xi’s return from his trip to the Middle East and Africa.

After the retreat, President Xi is expected to meet Malaysia’s newly crowned Prime Minister Mahathir Mohamad in Beijing on August 13 at the earliest, according to South China Morning Post. It is at Beidaihe that Xi and the most politically influential figures in China will socialize and brainstorming over policy and politics.

 

Needless to say, this year’s gathering will be primarily about trade war with the U.S. The elite will be strategizing on the next moves or alternatives to take, now that Trump has made known his next move of imposing tariffs on every Chinese good imported to the U.S. The participants will be under pressure to provide convincing new strategies in order to win the war.

 

While Xi Jinping’s authority is not expected to be challenged, “others” would certainly be interested to hear his view on the trade war, arguably the biggest in the economic history of the Middle Kingdom. Still, President Xi, currently “China’s most powerful leader since Mao Zedong”, may decide to play down the seriousness of the trade war and spend minimal time on the subject.

Xi Jinping’s next strategy could be quietly scale down on the purchase of U.S. Treasurys or even sell off some of its US$1 trillion bonds to push up the yields, making it more expensive for the U.S. government to borrow. Beijing could also annoy Trump, again quietly, by devaluing its currency Yuan / Renminbi in order to quickly offset the impact of tariffs.

 

Of course, China could make life harder for U.S. companies in the country, the same way they had done it to the Japanese and South Koreans. At the same time, Xi Jinping could choose to simply ignore Donald Trump but continue courting Europe, Canada and other countries to form a new alliance or unofficial trade partnership, and in the process isolate the U.S.

 

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July 21st, 2018 by financetwitter

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