China’s Trade-War Tack Is Steeped in History

(Bloomberg Opinion) -- President Donald Trump certainly has a way of picking his moment.

After weeks of will-he, won’t-he, the U.S. government’s latest announcement on tariffs on $200 billion-worth of Chinese goods came Tuesday Beijing time, just as the nation was preparing a nationalistic commemoration of resistance to foreign humiliation.

Sept. 18, 1931 marks the Mukden Incident, when dissident Japanese soldiers staged a fake attack on a railway line near the modern Chinese city of Shenyang as a pretext to their country’s invasion of Manchuria.

China’s increasingly jingoistic turn under President Xi Jinping has turned this anniversary into a sizable event, marked with memorial ceremonies, school assemblies and air-raid sirens blaring in some cities, and this year a film screening in Washington. Since 2014, Beijing has introduced three public holidays to commemorate aspects of the war with Japan, two of them taking place this month.

To dismiss all this as the stuff of school textbooks would be to underestimate the way the Communist Party has long sought to turn China’s history to propagandistic ends. U.S. negotiators trying to work out whether Beijing will agree to make wide-ranging changes to its economic model in response to threats from Washington should consider that, to decision-makers in Zhongnanhai, they’re engaged in more than just an everyday economic fight.

You can trace the story through Xi’s speeches, like the one he gave to mark the 20th anniversary of Hong Kong’s handover last year, or to celebrate 70 years since the end of the war with Japan in 2015.

It begins in the early 19th century, when the European vogue for Chinese tea and manufactured goods left the Qing Empire with a substantial trade surplus. The British East India Company sought to redress this balance by paying for Chinese goods with the opium it grew in India. That stopped the drain on its silver reserves but fueled a growing addiction crisis in China.

The trade eventually prompted China’s equivalent of the Boston Tea Party, when Qing officials seized about 1,300 metric tons of opium in 1839 and destroyed it on an island at Humen in the mouth of the Pearl River. Unlike its American precursor, though, the Humen incident was a disaster, sparking the First Opium War and, ultimately, the hand-off of Hong Kong to the British.

While many Chinese citizens may be more conscious of the Great Leap Forward, the Cultural Revolution, and the post-Tiananmen crackdown, the country’s leaders still remember the Opium Wars, and the further conflicts that characterized the long decline of the Qing Empire. Official rhetoric describes the whole period as a century-long “national humiliation” that only the Communist Party was able to reverse.

The Monument to the People’s Heroes, built in Tiananmen Square after the founding of the People’s Republic, is Beijing’s equivalent of Nelson’s Column or the Washington Monument. There, the Humen incident forms the first panel of the national story; the war against Japan forms the second-last.

Now fast forward to the present. Once again, China has a significant trade surplus. Once again, the world’s preeminent trading nation is complaining about it. Once again, Chinese leaders suspect that the appeal to free trade is an excuse to seek  wide-ranging changes to the Chinese state.

To date, Beijing has shown little interest in coming to the table. The weakness in Chinese stocks in recent months is, in many ways, a symptom of the country’s continued focus on deleveraging and refusal to take a more stimulative path in response to the threats from Washington. 

It’s possible that China’s relatively muted response to Trump’s trade rhetoric is the result of rumored leadership tensions in Beijing staying Xi’s hand from the more aggressive path seen in recent years. At the same time, it’s hard to see how current officials would be able to hold on to their own prestige were China to agree to another unequal treaty with the West — let alone at a time when analysts estimate the economy will tick up, regardless of the turmoil in stock markets.

Those hoping for a victory by Christmas to avert the proposed increase in the latest tariff rate to 25 percent from the current 10 percent should watch out. This isn’t just another economic fight for Xi, or the Communist Party. To them, this is history repeating itself. And this time, they’re determined to be the victors.

To contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

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