China Plays for Time in Trade War With Subtle Shift in Rhetoric
(Bloomberg) -- Officials in Beijing appear to be toning down their responses to Donald Trump’s tariff threats, amid a slowing economy, a falling stock market and a weakening currency.
Evidence of the shift continued Thursday when the Commerce Ministry held off detailing how it plans to retaliate against Trump’s latest threat to impose tariffs on $200 billion worth of Chinese-made goods.
Commerce Ministry spokesman Gao Feng said the government will take “necessary” steps to hit back, but when pressed he stopped short of repeating a previous pledge to respond with “quantitative” and “qualitative” measures and didn’t outline specifics about which measures China would retaliate with.
To observers, the ever-so-slight change of tone suggests China could be playing for time with the aim of restarting stalled negotiations for a solution that would limit the need to unleash punitive measures that could hurt its own economy. For President Xi Jinping, gathering problems at home and abroad may be prompting a less confrontational course.
“China may be moving gradually from the current tit-for-tat mode of retaliation toward a controlled, selective retaliation,” said Chang Jian, chief China economist at Barclays Plc in Hong Kong.
Indeed, Chinese and U.S. officials have raised the prospect of resuming trade talks, though no concrete steps in that direction have become evident yet. On Wednesday, China’s Vice Minister of Commerce Wang Shouwen said “when we have a trade problem, we should talk about it.” While that came amid fresh threats of retaliation from Beijing, it matches some willingness from the Trump team to resume talks at a high level, according to a person familiar with the administration’s thinking.
Analysts also point to the U.S. compromise allowing ZTE Corp. to resume doing business with American suppliers, reversing a seven-year ban. The U.S. government said the company violated sanctions agreements by selling American technology to Iran and North Korea. The ban forced ZTE to announce it was shutting down.
The White House has also chosen a less confrontational approach to limiting Chinese investment in the U.S.
To be sure there appears to be little obvious sign of a breakthrough. Both China and the U.S. have domestic political pressure and there’s scant evidence that the U.S. plans to ease up on its concerns about China’s ambitions to create a high-tech economy with state aid.
That means the situation is fluid.
“Trump is the ‘Art of the Deal’,” said Singapore based Fraser Howie, co-author of the book “Red Capitalism,” who has two decades of experience in China’s financial markets. “Everything is in play and everything can be changed at a moments notice.”
In the U.S., House Speaker Paul Ryan, a Wisconsin Republican, drew a stark difference between his vision for trade and that of Trump, saying imposing tariffs on trading partners isn’t wise.
Ryan said “bad actors” like China commit trade abuses, as Trump has asserted, but that new tariffs “are not the solution.” Even so, Ryan hasn’t advocated any legislation to reverse the tariffs.
Asian stocks rose Thursday after a bruising sell-off the previous day, despite there being little fresh evidence that the trade tensions would abate. The yen declined and crude oil rebounded from its biggest plunge in two years on Wednesday.
Dollar for Dollar
How China responds to the latest Trump threat is complicated by the fact it imported $130 billion of U.S. goods last year, less than a third of the value of U.S. imports from China. That means in an all-out, tit-for-tat trade war, China would not be able to match the tariffs dollar by dollar.
Further footprints of the standoff are set to show up in Chinese economic data due over the next few days. June trade data is due on Friday and second quarter gross-domestic product figures are scheduled for release on Monday. Growth was set to slow this year anyway, before the current tensions blew up.
“It is clearly not in China’s interests to be engaged in an escalating economic conflict with the U.S. which will be harmful to China’s growth,” said Edward Alden, a Washington D.C. based trade specialist at the the Council on Foreign Relations and author of ‘Failure to Adjust: How Americans Got Left Behind in the Global Economy.’
“I do think the Chinese should be looking for every avenue possible to find a compromise,” Alden said.
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