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‘In our culture we punch back,’ Xi warns Trump

Chinese president fuels fear that confrontation will spiral out of control with words to US and European executives

June 26, 2018 6:08 AM (UTC+8)
Photo: Reuters/Carlos Barria

Trump administration officials tried to push back on Monday on reports that a trade war was set to escalate, but it wasn’t enough to counter the headlines.

After news that the White House was set to place new curbs on investments into the US by Chinese firms, The Wall Street Journal reported that Chinese President Xi Jinping was sending thinly veiled warnings to US firms companies about the consequences of an all-out trade war.

“In the West you have the notion that if somebody hits you on the left cheek, you turn the other cheek,” the Chinese leader was quoted as saying. “In our culture we punch back.”

There has been widespread speculation about what leverage Beijing would use to push back on US tariffs.

Tariffs on US$35 billion worth of Chinese goods are set to take effect at the end of next week, and the administration of US President Donald Trump is threatening tariffs on as much as $450 billion, or about 90% of goods imported by the US from China in 2017.

China can’t match such tariffs as it only imports around $150 billion worth ($170 billion if you include Hong Kong), as Brad Setser writes at The Council on Foreign Relations, so they would have to resort to other measures to “punch back.”

Dumping US Treasuries is one option, but is unlikely and the US would have various tools to counter, as Setser explains in detail.

Targeting individual US companies that rely on the Chinese market through “qualitative measures” – a term used by the Chinese Ministry of Commerce last week – seems much more likely.

Nevertheless, despite Xi’s warning to executives last week, sources in the Chinese government are trying to reassure that they are not planning to target US companies operating in China.

“A big worry for China is that foreign investors are opting to leave the country,” one source said, according to the South China Morning Post. “The option of targeting US firms in China has never been on the cards.”

Regardless, according to one senior official quoted by the WSJ, “China is not going to yield to outside pressure and eat the bitter fruit…. That’s the negotiation principle set by President Xi.”

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