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Beijing's problems in the trade war with the US

Hans Spross | Jun Yan
August 11, 2018

There are allegedly differences within the Chinese leadership over the course of the trade dispute with the US. A consensus might be found at the traditional summer party conference in Beidaihe.

US and Chinese flags crumbling
Image: picture-alliance/chromorange/C. Ohde

So far, there seems to be limited economic impact from the reciprocal punitive tariffs, or, rather, the announcement of such, between the US and China, the world's two largest economies. China's exports to the US increased in July, even after the US introduced the first round of tariffs.

There are also no signs of excessive inflation. In the view of economic experts, this gives the Chinese central bank further scope for stimulating growth through monetary policy.

Impressive volume of goods

The volume of goods potentially affected by punitive tariffs is impressive: $250 billion (€219 billion) for Chinese imports into the United States, $110 billion in the opposite direction.

So far, China has reciprocated every US punitive customs measure in equal kind, but this strategy is likely to reach a limit because China imports much less from the US than it exports there. The trade imbalance denounced by Trump will now benefit him by putting China under pressure.

Until now, Beijing has acted as if it is assured of victory and declared that it will not give in to the US.

"We did not want a trade war, but we will not shy away from one" is the position that has been taken by Beijing. But, in the meantime, doubts appear to be growing in the Chinese government leadership about the wisdom of the strategy so far.

Bottle of whiskey and jar of peanut butter held by a cashier in a Beijing store
Several important US imports will be affected by the Chinese import tariffsImage: picture-alliance/newscom/S. Shaver

Avoiding stock market jitters at all costs

Above all, leaders want to avoid panic on China's notoriously volatile stock markets. Currency fluctuations are not to be linked to the trade dispute in any way. In recent private conversations in party circles in the Chinese capital, of which DW has been informed, unusually critical remarks about the handling of the trade dispute were heard, for example from a manager of a state bank: "Nobody can understand why Xi Jinping plays his cards so miserably, despite having a good hand. We've already spectacularly lost one round."

An anesthetist said he was allowed to withdraw only $5,000 in cash when exchanging RMB for dollars. "I'll buy more US dollars later. The devaluation of RMB is guaranteed to happen." Chinese leaders are especially concerned by the possibility of a financial crisis triggered by an escalation of the conflict with the US.

Criticism of the leadership

Several unnamed sources from government circles have outlined to the Reuters news agency the criticism currently being leveled at the leadership, including Xi. The gist is that Beijing has taken too much of a nationalist approach and lulled itself into confidence that it will win out against the US.

"The development of the dispute with the US from a trade conflict to a trade war has led people to reconsider," Reuters quoted an expert from a Chinese political institute as saying.

Read more: WTO warns Trump trade war risks 'millions of jobs'

Unsuccessful negotiations

As recently as May, at a new round of negotiations in Washington, it looked as if the trade dispute could be defused.  "The US and China explained in a joint statement that effective measures had been agreed to significantly reduce the US trade deficit with the People's Republic," it was said at the time.

The fact that this vague declaration of intent had no effect became apparent at the beginning of July, when the US put the first punitive tariffs into force. The situation also escalated verbally. In mid-July, Washington accused Xi of preventing progress in resolving the conflict, while saying that his top economic adviser, Liu He, for example, was prepared to compromise, even on sensitive issues such as technology transfer.

Liu He
Lui He was alleged to be willing to compromise with the USImage: picture-alliance/Xinhua News Agency

This allegation was immediately rejected by Beijing: "The unexpected distortion of facts and false accusations are shocking and unfathomable."  The US's 180-degree turns and broken promises were known across the world, the Chinese government said.

Trump's course poses problems for Beijing

Trump's stubborn adherence to his course of "punishing" China for its "unfair" trade practices appears to be posing problems for the leadership in Beijing.

"In the trade war, our propaganda first followed the line of characterizing Trump as mad. But the fact is that Trump is afraid of China becoming too strong," Reuters quoted an unidentified official from the propaganda sector as saying.

In fact, Beijing stepped on the brakes a few weeks ago with regard to anti-Trump propaganda. According to a directive of the propaganda authority, one should not attack Trump's "commonness" or descend into a "war of insults."

Read more:Germany, China seek closer alliance in trade spat with US 

Summer conclave in Beidaihe

So, what's next? What messages should be conveyed to the outside world in view of the ongoing tariff war with the US, and, above all, what message should be conveyed on the domestic political front? This is likely the question being asked at the traditional summer conclave of the CCP leadership currently being held at the seaside resort of Beidaihe, some 300 kilometers (180 miles) east of Beijing. Whether deeper tensions between the apparently unassailable Xi and opponents within the party will come to light remains pure speculation.

Mao Tse-Tung sitting at the beach in Beidaihe
Even Chairman Mao, seen here in 1960, attended the summer meeting in BeidaiheImage: Imago/Xinhua

A Chinese journalist has suggested indirectly that things could become exciting in Beidaihe, complaining privately in Beijing: "In previous years journalists were allowed to report at close quarters. This year, even reporters from the state press couldn't get accreditation."

American farmers are losing in US-China trade dispute.

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