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Opinion
Are Trump's Declarations of Victory a Way to Step Back From the Brink?
The trade war has not materially injured the Chinese economy
By Lan Xinzhen | Web Exclusive

“The U.S. is winning the trade war with China,” “Tariffs are working big time” and “really hurting their economy.” This brand of triumphant rhetoric, posted by U.S. President Donald Trump on his Twitter account, has been taken as evidence of the country’s victory in the trade war by some U.S. media outlets.

But has the United States really won? In fact, the trade war has only just begun and the two parties have thus far only touched gloves as boxers do before the fight truly gets underway, and the final winner remains to be seen.

As Trump himself and some U.S. media outlets see it, China’s stock market has lost its ranking as the second largest in the world since the start of the trade war, slipping to third behind Japan. They also claim that China’s economy has started to feel the impact of U.S. tariffs and that Chinese exports to the United States have been cut.

There are other similar claims, but none of them seem to really affirm any sort of U.S. victory in the trade war.

Trump is most concerned with the fall in standing of China’s stock market. However, this decline began in 2015, before Trump had assumed office as president, and was caused in large part by measures taken by the Chinese Government such as driving economic transformation and deleveraging to defuse financial risks. China’s stock market did begin to slip again from the start of 2018 after a slowdown last year. Although the trade war initiated by the United States has had an impact, market concerns triggered by the deleveraging policy are the major pushing forces causing Chinese equities to drop. Trump credits the downturn of China’s stock market to his actions, but for those who are familiar with China’s economic development and capital market, this is not persuasive.

So what about the impact of U.S. tariffs on China’s economy? In the first half of 2018, the trade spat between China and the United States was already underway and had a significant influence on international investors. However, the fact remains that only few foreign investors withdrew from the Chinese market, with some choosing to continue investing in China. Statistics released by China’s Ministry of Commerce show that, the country’s actual utilization of foreign capital in the first half year of 2018 increased steadily. During that period, newly established foreign-invested enterprises across China added 29,591, an increase of 96.6 percent year on year. The actual utilization of foreign investment was 68.32 billion dollars, increasing by 4.1 percent year on year.

China’s foreign trade faces similar situation. On July 6, the United States started imposing tariffs on selected Chinese exports, while statistics from China’s General Administration of Customs show that the total value of Chinese imports and exports reached 2.6 trillion yuan ($376.8 billion) with an increase of 12.5 percent in July. China’s imports hit 1.39 trillion yuan ($201.4 billion) and increased by 6 percent, while exports reached 1.21 trillion yuan ($175.4 billion), with an increase of 20.9 percent. In view of the statistics, there is nothing to suggest that China’s exports and imports have been adversely influenced by the trade war.

As for trade between China and the United States, China’s exports to the latter reached 267.66 billion yuan ($38.79 billion) with an increase of 5.6 percent, while imports from the United States stood at 87.06 billion yuan ($12.62 billion), increasing by 4.3 percent. These statistics too show no sign of Trump’s supposed victory. Perhaps in reality, by announcing U.S. victory, the U.S. president is trying to find a pretense to step back and return to the negotiating table with China.

The Trump administration has always imposed high tariffs amid trade frictions with other economies in a highway-robbery approach, before long announcing the concession of its rivals and the victory of the United States itself. He then returns to negotiation and forces rivals to accept an offer favorable to him. It seems that Trump intends to repeat this strategy in the Sino-U.S. trade war.

However, China has refused to compromise. On the contrary, it has retaliated to U.S. tariffs and filed a complaint with the World Trade Organization to defuse the tension under the framework of international rules. China’s response is in stark contrast to the illegal action of the Trump administration and has won the support of the international community.

More importantly, the trade war has not materially injured the Chinese economy and the Chinese Government is well prepared for an attritional campaign.

This is what Trump is not willing to see. Though Chinese economy will surely be affected if bilateral economic and trade exchanges be stalled due to the trade war, the damage to the United States will be too much for it to bear.

In 2017, the value of trade between China and the United States reached $580 billion, accounting for nearly 15 percent of the total foreign trade of the United States. Once bilateral trade stagnates, U.S. foreign trade could be hurt as much as those of China. It should also be noted that, in 2017 the United States imported $430 billion goods from China and China bought $150 billion U.S. products. If the trade tension escalates, China needs to seek $150 billion of imports elsewhere to substitute those from the U.S. while the United States will have to replace $430 billion of Chinese exports.

Whether the United States can fully substitute so many Chinese exports with goods from other countries still remains to be seen. Trump has probably also considered the possible reaction of the U.S. public once the trade war settles in for the long haul, especially with all Chinese exports covered on the U.S. tariff list.

China will not yield and is prepared for a long-lasting battle, with Trump more likely to blink first in this particular standoff. In claiming that “the U.S. is winning the trade war with China,” Trump is revealing his intention to negotiate.

The outcome of the trade war may yet be dialogue in which China and the United States reach the common ground of mutual benefits on the basis of equality. After sizing each other up and learning each other’s strengths, the two sides can hopefully now approach the negotiating table with more respect for one another.

Sure enough, on August 16, message from China’s Ministry of Commerce came that, at the invitation of U.S. side, Vice Minister Wang Shouwen will visit the United States in late August to talk with the U.S. counterpart on bilateral economic and trade issues.

It thus makes sense for Trump to portray a return to the negotiating table as the result of his victory so as to retain his pride and find a way out of the unwinnable situation he has gotten himself into.

Copyedited by Laurence Coulton

Comments to lanxinzhen@bjreview.com

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