China can turn the other cheek, for now

Turning the other cheek takes fortitude, but that’s what China could do in response to the U.S. government’s latest actions. It slapped sanctions on Chinese officials for abuses of Muslim Uighurs, escalating tensions between the two global giants. Beijing may want to drop a trade deal as punishment, but Chinese President Xi Jinping will want threats in his back pocket following the November election.

The White House move to go after a high-ranking official brings relations to a new low. The Treasury Department said on Thursday that the head of the communist party in Xinjiang province, where Uighurs are being detained, is among those subject to U.S. asset freezes. Americans are also barred from doing business with sanctioned individuals and entities.

Tensions were already high with China, which Trump has blamed for its handling of the Covid-19 outbreak. The State Department announced visa restrictions in relation to a new Hong Kong security law and Beijing retaliated. Other U.S. sanctions may be in the works. Yet the so-called Phase One trade deal with the People’s Republic has remained intact. In January, China pledged to buy an additional $200 billion worth of American goods and services over two years. Investors have been watching for any signs it may fall apart.

Xi could threaten to pull this deal, but it’s more useful to wait until after the U.S. presidential race. Xi said in 2018 that China would punch back instead of turn the other cheek in response to trade tensions. Yet he doesn’t know if he will be squaring off against Trump or former Vice President Joe Biden, the presumptive Democratic nominee, in 2021.

The two candidates are trying to outdo each other in their toughness on China. Biden is more aggressive when it comes to human rights abuses and has said Beijing should be punished for the Hong Kong crackdown. He’s not transactional, per se, but that makes it harder to find compromises.

Trump could keep on China critics like economic adviser Peter Navarro if he wins another term, plus bashing the country caters to his base. He also won’t have to worry about re-election, which could lead to stricter moves on the mainland that would hurt markets. Xi’s punches will land better if they are delayed.