It’s Getting Harder to Tell Where the Trade War Is Headed

(Bloomberg) --

Take this week for example. Beijing awoke on Monday facing a situation that appeared to have taken a serious turn for the worse. President Donald Trump had not only increased U.S. tariffs on Chinese goods, but had also described Xi Jinping as an enemy on Twitter and threatened to order American companies out of China.

But by that afternoon, things had changed. Trump was again describing Xi as a great leader and had praised Vice Premier Liu He for emphasizing calm negotiations. The U.S. president also said Beijing had initiated two “very productive” phone calls and expressed a wish to restart talks, a development read by many as a cooling of tensions.

Soon though, there were doubts raised about those phone calls. China’s foreign ministry, when asked, declined to confirm that they’d occurred. Hu Xijin, editor of the Global Times newspaper who’s become increasingly prescient on Twitter, suggested that Trump was exaggerating the significance of conversations happening between lower-level officials and that nothing about the situation had changed.

Beijing was instead hunkering down for a long fight, according to Chinese officials, and they were doing so at least partly because of growing unease about Trump’s flip-flops.

Trying to gauge what might happen next in this trade war has always been a fraught exercise. Increasingly, however, it seems the only coherent thing that can be said about the situation is that it's complicated.

Hong Kong

Speaking of tough jobs, Hong Kong Chief Executive Carrie Lam used a weekly appearance in front of the media to assuage concerns that China’s military could be called on to quell the protests that have gripped the city for three months. That came after a weekend of renewed violence and a commentary by the official Xinhua News Agency, which argued Beijing has the authority to deploy forces in Hong Kong. The economy, meanwhile, continued to flash warning signs with Hong Kong reporting this week that exports contracted for a ninth consecutive month in July.

Opioid Crisis

Fentanyl, the highly addictive synthetic opioid, is another aspect of U.S.-China tensions that’s in the news recently. Washington has long accused Beijing of not doing enough to crackdown on Chinese producers who illicitly ship the drug to America. Trump, in his tweets announcing plans to increase tariffs on Chinese goods, cited fentanyl as one reason he was taking that step. China has countered by accusing some in the U.S. of using the issue for political gain and asserted Beijing’s crackdown is reducing the flow of fentanyl. There’s some evidence to suggest that‘s true, but unfortunately, the effect on America’s opioid crisis may be minimal. What once was made in China now appears to be increasingly produced in Mexico.

Crowded Shopping

And while the trade war is forcing some companies to reduce their exposure to China, others are continuing to push ahead. Costco’s experience this week underlines why that’s so. When the American retailer opened its first China store in Shanghai, there were so many customers crowding into shop that the outlet had to close its doors earlier than scheduled. On day two, Costco instituted a tight 2,000 shoppers a day limit to ensure the outlet wasn't again overrun. That display of enthusiastic consumption helps explain why companies including Tiffany & Co., Ford and Tesla are investing more in the world’s second-biggest economy.

Ma and Musk

Elon Musk visited Shanghai this week, during which he said the progress on Tesla’s multi-billion dollar factory there had “astounded” him. Musk also took time during his trip to participate in a one-on-one dialogue with Jack Ma at the World Artificial Intelligence Conference. The two world-renowned entrepreneurs didn’t disappoint, discussing a wide array of topics from population collapse to space travel to a three-day work week in the future. On artificial intelligence, the two differed on one key issue. While Ma thinks AI will never be smarter than humans, Musk argued that we would definitely make things more intelligent than ourselves.

What We're Reading

And finally, a few other things that caught our eye:

• China probes Tencent Music's licensing deal with record labels.
• How to tell if investors are pulling money out of Hong Kong.
• Who is Hong Kong's richest family and what do they have at stake?
• Christmas won't be merry for toymakers thanks to the trade war.
• China has more foreign debt than the official numbers show.

To contact the editor responsible for this story: Jeff Black at jblack25@bloomberg.net

©2019 Bloomberg L.P.

With assistance from Bloomberg