Two conversations reveal just how unlikely a US-China trade deal is
Despite some domestic backlash to trade war, there is plenty of confidence to go around on both sides
As US and Chinese officials debrief after trade talks this week, the two sides look no closer to feeling their way to a negotiated settlement. Far from it: talk coming from both sides indicates this game of chicken will end in an explosive collision.
The Trump administration’s position, as Asia Times columnist David Goldman pointed out today, is predicated on a belief that China’s economy is teetering on the brink of collapse. Or it is at least sufficiently fragile for tariffs to strike fear in the hearts of leaders in Beijing and impell them to capitulate.
In an interview this week, US Commerce Secretary Wilbur Ross made it clear in no uncertain terms he believes this to be the case.
“There will be some retaliation from China […] but so far we are way ahead of the game,” he said, stressing that “the economy is surging,” he said, speaking on CNBC.
“Naturally they’ll retaliate,” Ross acknowledged, but, he said, “at the end of the day we have many more bullets. They know it.”
“The thing they’ve been underestimating is how patriotic the Americans – including the ones who’ve been hit with retaliation – are. They’ll know that pretty soon,” Ross predicted confidently.
China knows the US has many more bullets? Chinese tech behemoth Ailbaba’s vice chairman, Joseph Tsai, didn’t get the memo. Speaking to analysts on the company’s quarterly earnings call, as reported by Business Insider on Friday, Tsai said he is not concerned about the trade war.
In fact, the trade war shouldn’t be a big problem for Alibaba’s e-commerce business or the Chinese economy, and China will likely gain the upper hand.
“This coming November, China will hold the world’s largest import exhibition in Shanghai that will showcase products from all over the world,” Tsai said. “If US goods become too expensive due to tariffs, Chinese consumers can shift to domestic producers or imports from other parts of the world.”
“We believe that Chinese government policy will continue to support imports into China to satisfy the rising demand of Chinese consumers,” he added.
Others quoted in the article agreed. Xiaojia Zhi and Helen Qiao, China economists at Bank of America, said they are already seeing the shift.
“We believe the Chinese government has more influence on how much and where to buy its imports than the US government’s influence on its own importers,” the economists wrote in a note to clients. “In other words, China could shift its imports from the US to purchases from other markets relatively more easily than the US administration pushing businesses to other alternative countries for outsourcing or imports.”
Chinese officials who met with US counterparts in Washington this week reportedly hinted that any future talks should wait until after midterm elections in November. This is perhaps in hopes that retaliatory tariffs, which disproportionately affect Trump’s political base, will dampen voter turnout and hurt his party’s chances maintain a majority in the House of Representatives.
Ross’ comments suggest the Trump administration is confident that China can’t break the will of those voters. Tariffs on an extra US$200 billion in Chinese goods, will, however, break China’s will, the thinking goes. Either way, the confidence on both sides make it look all but assured that an escalation is fast approaching.