(The original article is issued in Taipei Times, September 28, 2019, available at: http://www.taipeitimes.com/News/editorials/archives/2019/09/28/2003723022 )
By Eric Chiou 邱奕宏 /
Tue, Sept. 28, 2019 – Page 8
Delegates from the US and China last week resumed trade talks in Washington to pave the way for senior trade officials meeting next month.
The US has imposed more than US$300 billion of tariffs on Chinese goods, while China has retaliated with US$110 billion of tariffs on US products.
Although the economic impact of the trade war has been pervasive and consequential, the dawn of the end of this conflict remains remote and murky. Although the trade war has experienced ups and downs, it seems apparent that Beijing will not back down easily and Washington will also not be satisfied with a partial, short-term deal.
Similarly, it should be recognized that US President Donald Trump might be the most determined US leader that China has met since the normalization of US-China diplomatic relations in 1979.
However, one caveat should be noted: Trump is the most unpredictable president in recent US history. Hence, neither pundits nor experts can provide correct insights and foresee how the trade conflict will unfold.
Despite Trump’s imposition of stringent tariffs, China remains unfaltering, which makes Beijing probably the most unwavering counterpart that the US has encountered in recent years. As a consequence, trade talks have been ongoing since 2017, with more than a dozen rounds of negotiations, but only slight prospects of a conclusion.
It is increasingly clear that Trump might not get all that he wants in a deal, considering Beijing’s tenacious resistance. Then, what has been widely questioned is what Trump really wants from China and whether there are consistent strategies, concrete objectives or even a sophisticated grand strategy embedded in Trump’s trade war.
The answers seem to be negative. The decisionmaking in the Trump administration regarding this economic warfare against Beijing has been characterized as frequently implosive, inconsistent, self-conflicting and erratic, to a large extent.
Although his trade bargaining approach can be accurately depicted as highly unpredictable, Trump, conversely, praises it as a unique advantage that he can leverage with a great deal of flexibility to catch his opponent off-guard.
However, the downside of this bargaining tactic is that it leaves his counterpart with a difficult task to comprehend Trump’s ultimate ends, so it has little chance to offer corresponding proposals, leading the trade talks into an infinite cycle of compromise, breakdown and renegotiation.
First, Trump’s self-conceited tactic of unpredictability causes more harm than good. Not only does it unnecessarily increase transaction costs for both parties, it also significantly undermines mutual trust and thus makes a compromise more infeasible.
Furthermore, Trump’s unpredictability during the negotiation process invokes unintended consequences and damages the reputation of the US.
US allies increasingly feel anxious and uncertain about their economic relations with Washington, as Trump’s capricious policymaking and vehement protectionist penchant are likely to undercut allies’ confidence in Washington, which makes it harder for the US and its allies to stand side-by-side and coordinate action against China.
Trump’s unpredictability in the US-China trade war actually exposes his paradoxical and ambiguous objectives toward China. His trade agenda for Beijing has evolved. Thus, it is no surprise that vague goals only breed obscure actions.
By and large, Trump’s initial objective of imposing tariffs on China was primarily driven by his economic nationalist thinking and the fulfillment of a campaign promise. By wielding the tariff sword, the top of his agenda is to compel US firms to exit China. It would be even better if tariffs caused firms to move their manufacturing plants back to the US, which would help achieve his campaign slogan of “Buy American, hire Americans.”
Second, by building tariff walls to exclude Chinese goods, Trump expects that the US trade deficit with China would be dramatically slashed. Given that no US president has ever had the courage to tackle this chronic and increasingly devastating trade imbalance, Trump could earn enormous credit if he could effectively narrow the deficit by removing Chinese goods from the US market.
Third, Trump utilizing tariffs to force Beijing to come to the negotiation table is a timely response to the US business community’s lasting concerns over several imperative issues, such as China’s infringement of intellectual property rights, enforced technology transfers and barriers to entry to the Chinese financial services markets.
Trump would be more than delighted to employ tariffs to coerce Beijing to submit to Washington’s terms on such issues, while reducing the deficit and satisfying the demands of the US business community.
Despite these objectives remaining essential, as trade talks unfold, the issues on the bargaining table have multiplied and become more complicated. The controversies surrounding China’s national champions, ZTE and Huawei Technology Co, not only magnify the US-China trade dispute in the high-tech race over 5G telecommunications technology, but also confound the initial trade issues with concerns of national security regarding using Chinese 5G products and equipment.
The latest plunge in the value of the yuan has also ignited Washington’s apprehension and prompted accusations that Beijing is using currency manipulation to counter tariffs. Coupled with the ongoing volatility in Hong Kong, where reformist protesters are calling for Washington’s support, it seems that US-China tensions are becoming even more intertwined without an end in sight.
Beijing’s tenacity and endurance might be unexpected for Trump. After all, he has compelled South Korea, Mexico, Canada, Japan and, to a lesser extent, the EU to agree to US terms in new trade deals or to restart renegotiations.
Nonetheless, what Trump might not anticipate is that China’s leadership is not a docile and adorable panda, but a fire-breathing dragon.
In contrast with the US, a pluralistic democracy with a myriad of interest groups competing to influence its president, China’s comparative advantage lie in its authoritarian political system, which not only allows Beijing to escape elections, but also enables it sufficient room to impose stringent social control and surveillance, clamp down on burgeoning social unrest, as well as maneuver its omnipresent state capitalism.
The advantages of a one-party authoritarian system provide Beijing with a variety of economic instruments to weather the economic storm that originated in Washington.
Furthermore, to help it confront Trump’s excessive pressure, Beijing can also appeal to nationalism and incite patriotic sentiment domestically by calling for a united front against the US on the one hand, while consolidating the rule of the Chinese Communist Party on the other.
Nevertheless, Beijing has been self-constrained and limited its use of such tactics, as it might not be in its interests to arouse nationalist sentiment and escalate tensions with Washington. Hence, Beijing’s strategy has been to allure Washington with proposals of sizeable commercial orders, and promises of domestic reforms and market liberalization.
By doing so, Beijing hopes to temporarily appease Trump’s economic assault and buy more time to prepare for ultimate economic competition with Washington. Beijing’s political calculation might be to prolong trade talks, as the negative impact of the trade war will not merely hurt Trump’s electoral base and undermine his support, but also lower his chances of being re-elected.
After all, the Chinese leadership has no term limits and enjoys the privilege of being able to wait for the next US president.
In other words, Trump might be keener to strike a trade deal than Beijing to proclaim his economic achievement in the upcoming presidential campaign. However, this assessment might underestimate Trump’s determination on this issue as an untypical and populist politician.
Given that the anxieties over China’s looming threats have permeated and become a consensus across the aisle in the US Congress, it seems pessimistic that any hopeful US presidential candidates would be willing to take a conciliatory stance toward Beijing. Hence, whoever is elected next year, it seems that Washington’s unyielding position on China might not change.
So, whither the trade war?
The odds of reaching a comprehensive and a durable agreement between Washington and Beijing by the end of this year do not look good. The problem is not that neither side desires to make a deal, but that each side is conducting a strategic plan, meaning that an action hinges on the other side’s behavior.
This strategic interaction of bargaining, Trump’s unpredictability and political calculations intensifies the complexities of the trade deal. Without explicit preferences, clear priorities and unwavering political support from senior leadership, the prospect of a breakthrough remains grim.
Eric Chiou is an associate professor of international political economy at National Chiao Tung University and a Fulbright Visiting Scholar at Harvard University.