ontainers sit stacked next to gantry cranes at the Yangshan Deep Water Port in this aerial photograph taken in Shanghai, China. (Photographer: Qilai Shen/Bloomberg)

In New Trump Tariffs, China Sees Master Plan to Thwart Its Rise

(Bloomberg) -- For officials in Beijing, the worry about Donald Trump’s latest tariffs isn’t the impact on trade: Rather it’s the steady march toward a long-term competition that could thwart China’s rise.

Trump slapped tariffs on $200 billion worth of imports from China and threatened more if Beijing retaliates. On Tuesday, China said it would levy tariffs on $60 billion worth of U.S. goods effective from Sept. 24.

President Xi Jinping’s government is preparing for Trump to put duties on all Chinese goods, and expects him to start using the U.S.’s military, technological and financial advantage to pressure Beijing, according to one Chinese official.

“After levying tariffs on all Chinese imports, what can Trump do?” said the official, who asked not to be identified to speak about sensitive matters. “There will be systemic containment and suppression.”

Despite Trump touting a personal “friendship” with Xi, U.S.-China relations have deteriorated on virtually every front under his presidency, from trade to cyber-security to geopolitical flashpoints like Taiwan and the South China Sea. The fear in Beijing is that Trump’s main goal is to keep Beijing permanently in second place in a world dominated by the U.S.

“More and more in China’s elite circle now think Trump’s trade war is not just about fair trade and trade balance,” said Zhang Baohui, director of the Centre for Asian Pacific Studies at Lingnan University in Hong Kong. “Rather, it is a containment program to change China’s long-term power trajectory.”

In public, Chinese leaders are projecting confidence in the face of Trump’s escalating threats. Fang Xinghai, vice chairman of the China Securities Regulatory Commission, said the country’s economy would be fine even if Trump slaps tariffs on all of China’s imports.

“China has ample fiscal and monetary policies to cushion that impact,” Fang told the World Economic Forum in Tianjin on Tuesday. “So we prepare for the worst, and we think the economy will still be fine.”

Under the surface, though, officials have reasons to worry. China’s economic momentum weakened again in August. Investment growth in the first eight months slowed to the lowest pace since at least 1999 and infrastructure investment rose just 4.2 percent, the weakest expansion since the data series started in 2014.

The country’s stock market has also been tanking. This week the Shanghai Composite Index fell to its lowest level since 2014, before the $5 trillion boom and bust in the country’s equity market.

That economic weakness may be one reason China hasn’t yet completely closed the door on further talks with the Trump administration. China’s finance ministry said Tuesday it’s still open to dialogue with the U.S., even though it’s unclear if talks led by Treasury Secretary Steven Mnuchin would go forward.

Chinese officials appear eager to discuss details out of the media spotlight, and Trump’s Twitter feed. On Tuesday, Trump accused China of trying to impact U.S. elections by “attacking our farmers, ranchers and industrial workers” and vowed “great and fast economic retaliation.”

“China has been taking advantage of the United States on Trade for many years,” Trump said on Twitter. “They also know that I am the one that knows how to stop it.”

Limited Options

One Chinese official, who also asked not to be identified, said it may be better to hold talks with the U.S. informally, out of the public eye. Communication is essential to avoid misunderstandings, former deputy finance minister Zhu Guangyao told reporters on Monday night in Brussels.

“Substance is more important,” he said. “We hope that both China and the U.S. can really enhance understanding and get back to the right track for cooperation.”

For now, the options available to China’s leaders are limited. Retaliate with full force and they risk further provocations that could harm the economy. Compromising too early risks signaling weakness, which could prompt Trump to ask for even more and undermine Xi’s strongman image at home.

No matter what, Chinese officials are digging in for a protracted conflict. They’ve been skeptical of talks ever since Trump embarrassed Xi’s top aide a few months ago by stopping a deal for China to buy more energy and agricultural goods to narrow the trade deficit. Trump recently boasted that his trade policies had stopped China from catching up with the U.S.

‘There Is No Solution’

The latest tariff measures do even more to suggest the conflict will last beyond the mid-term elections in November, and even the Trump presidency: the 10 percent tariff that takes hold on Sept. 24 will rise to 25 percent on the first day of 2019 -- a move the U.S. says will help companies readjust their supply chains. Chinese billionaire Jack Ma, the chairman of Alibaba Group Holding Ltd., warned the trade war could last 20 years.

“This thing will last long,” Ma said during a speech on Tuesday at the company’s investor day conference in Hangzhou. “If you want a short-term solution, there is no solution.”

©2018 Bloomberg L.P.