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US-China trade spat: Clash of the titans

Thomas Kohlmann mm
August 23, 2018

Washington has imposed a second round of tariffs on Chinese imports, and Beijing didn't hesitate to strike back. Observers worldwide wonder how long the two sides are going to play with fire.

US beef on sale in China
Image: picture-alliance/dpa/Li Zhihao

The United States enacted 25 percent tariffs on Thursday on $16 billion (€13.8 billion) worth of Chinese imports. The second round of duties between the US and China, the new tariffs met with tit-for-tat action by Beijing.

While the punitive measures remain at this level, the world's two largest economies can absorb the extra costs. But what happens if trade tensions escalate further? Does Beijing feel strong enough to embark on such an all-out trade war with its largest trading partner?

China's Department of Commerce on Thursday said Beijing will have to fight back against the US measures with retaliatory tariffs on American imports — from crude oil and coal to steel products and medical technology. These went into effect at the same time as Trump's.

US firms ‘getting taxed twice’

Read more: Beijing's problems in the trade war with the US

But not everyone in Beijing was convinced that China was right to react immediately to Trump's first round of tariffs, in June — which targeted $34 billion of Chinese goods for additional duties.

"China's response came quickly. They said: 'Then we'll do the same. We'll maintain parity,' so to speak. But now, it seems, many insiders are wondering whether this was really a wise move," Thomas Jäger, a political scientist at the University of Cologne, told DW.

Public uncertainty

The Chinese public is also worried about how the dispute will play out.

"I think the US will win the trade war because they are more advanced than China. Although China has a large population, the advantages are on their (the US) side when the fight starts," said 25-year-old coach Lin Zaishi, whom DW interviewed in Fuzhou, on China's southeast coast.

Forty-year-old finance manager Chen Jun sees the perspective of both sides: "I don't think either party is to blame because they are pursuing their own national interests. The Trump administration has its own interests to consider."

But a third Chinese passer-by in Fuzhou was critical of China's stance. "The world cannot live without the United States. The US has done a lot for world peace, it has sacrificed many of its soldiers and has financed the United Nations with a lot of money. Even if China had the same resources as the US, our country would not assume the same responsibility because the Chinese are selfish. I may be Chinese, but I'm telling you the truth," said the man, who requested to remain anonymous.

Read more: China investment slows as economy cools

Trade spat or war?

For months, the US trade conflict has been one of the dominant issues in China. Shortly after the war of words with Trump broke out, Chinese media played up what they said would be the negative effects of the tariffs on the American economy. State-controlled media argued that US businesses, consumers and workers would lose out. "Lift a stone only to drop it on your own feet," is how the Chinese proverb goes.

China's leaders have warned that if the trade war were to escalate, it would ultimately cause more damage to the US economy. A few days ago, the pro-government tabloid Global Times warned: "The trade conflict will hit middle-class families and the poorest [in the US] the hardest."

A truck unloads animal feed made from soybeans | Sojabohnen
China is expected to reduce imports of soybeans by over 10 million metric tons this year as a result of its trade spat with the USImage: picture-alliance/dpa/Xu Congjun

Even so, as well as speculating about its effects, the Chinese public appears to be preparing for the worst. Despite strict regulations, many Chinese are trying to convert their yuan assets into US dollars, euros or gold. High profile cases, such as that of a fund manager who allegedly tried to leave the Chinese mainland with several kilos of gold bars, have further fueled the paranoia on China's social media platforms.

Beijing's decision makers have already pulled the emergency cord and instructed banks to only allow foreign exchange withdrawals of up to $5,000 without verification — otherwise, customers must explain why they urgently need so many dollars. Reports suggest the new rules have been imposed surreptitiously.

Read more: Google reportedly working on censored search engine for China

Playing with fear

"The trade war has definitely sparked public fear," said Huang Weiping of Beijing's Renmin University, who sees the US tariffs primarily as a means of psychological warfare.

"The psychological effects outweigh the actual effects. The public's fear is real, but the impact on the real economy is minimal," the economics professor told DW.

According to Huang, the tariffs imposed by Trump are, at present, lower in volume than the annual real estate turnover in a typical medium-sized Chinese city.

"It's not a question of money. Fear among the population is the biggest problem for the Chinese economy," he added.

Ren Zeping is one of the country's best-known business analysts and chief economist at the real estate group Evergrande's research institute. Like many Chinese people, he believes that now is not the time for a wider trade conflict with the Americans.

'Return to reason'

"Before the trade war, there was a tendency for China to overestimate itself and show an inflated self-confidence. The current conflict has brought about nothing more than a return to reason."

Ren added that China must recognize that it still has a lot of catching up to do in terms of innovation, high-end plant construction, financial services, education, core technologies and the military.

China's leaders must now accept that the growing trade war, as well as Europe's growing resistance to Chinese takeovers of its companies, are warnings that the country is being too ambitious, the University of Cologne's Jäger told DW.

His remarks were made in regards to the Made In China 2025 strategy — where Beijing seeks to challenge the US and Europe for dominance of high-end manufacturing.

"Of course, this will all have changed by the centenary of the People's Republic, in October 2049 at the latest, when China will not only be on an equal footing with the US, but will also dominate the key technologies of the global economy," said Jäger.

US tariffs against China go into effect