Trade war ruffles Chinese leaders
Government weighs risk to economy if dispute prolonged
BEIJING — Chinese leaders have sought to project confidence in the face of President Donald Trump’s tariffs and trade threats, but as it becomes clear that the risk of a protracted trade war with the U.S. is rising, there are growing signs of unease inside the Communist political establishment.
In recent days, officials from the Commerce Ministry, the police and other agencies have summoned executives from exporters to ask about plans to lay off workers or shift supply chains to other countries.
With stocks slumping into bear territory and the currency dropping 9 percent against the dollar since mid-April, censors have been deleting a torrent of criticism online, some of it directed at President Xi Jinping’s leadership.
State news outlets, meanwhile, have struggled to stay on message, with authorities restricting the use of the phrase “trade war” and going to great lengths to boast about China’s economic strengths. Policy disputes over how to bolster the economy have at times spilled into the open.
If the trade war escalates — Trump has shown no sign of backing down — some worry that the public’s faith in the economy could be shaken, exposing the nation to much more serious problems than a drop in exports. Economic data released Tuesday showed slower growth in Chinese investment and consumer spending, and there are also
fears that the financial crisis in Turkey could spread.
China’s leaders have argued that they can outlast Trump in a trade standoff. Their authoritarian system can stifle dissent and quickly redirect resources, and they expect Washington to be gridlocked and to come under pressure from voters feeling the pain of trade disruptions.
But the Communist Party is vulnerable in its own way. It needs growth to justify its monopoly on power and is obsessed with preventing social instability. At the same time, Xi’s strongman grip poses the risk of hindering effective policy-making if officials fail to pass on bad news, defer decisions to him and rigidly carry out his orders, for better or worse.
Beijing has already had to shift course once, edging away from threats to match U.S. tariffs dollar for dollar. Confronting the possibility that the tariffs may remain for months or years and that Chinese
access to the U.S. market could tighten further, Xi does not appear to have settled on a strategy for limiting the damage or for persuading Trump to negotiate a deal.
Inside the government, some have argued that China should be more aggressive and put Trump on the defensive, while others have proposed concessions to address U.S. complaints, said Chen Dingding, a professor of international relations at Jinan University in the southern city of Guangzhou.
He said the debate was “a healthy development” because it would “inform the public and make policymakers better.”
Others said it reflects indecision or political weakness on the part of Xi, who seemed unassailable in March when the party leadership abolished the presidential term limit.
“All of this coming together suggests Xi’s grip on authority has been loosened,” said Willy Wo-lap Lam, a professor at the Chinese University of Hong Kong. “He’s unable to fill his function as the final arbiter who settles differences among
his closest advisers.”
It’s unlikely Xi’s position is in any jeopardy. But the trade dispute, a scandal over tainted vaccines and protests over failed investments have already emboldened some critics of his sweeping centralization of power.
“The recent Sino-American trade war has, in particular, revealed underlying weaknesses and the soft underbelly of the system,” wrote Xu Zhangrun, a law professor at Tsinghua University in Beijing, in a denunciation of Xi’s hardline policies that was shared widely despite censorship. “All of this has only served to exacerbate a widespread sense of insecurity in society at large.”
In public, the leadership has argued that China can weather the trade war with ease. A widely circulated study by economists at Tsinghua University estimated that the tariffs imposed so far and those threatened would trim only 0.3 percentage point from China’s growth rate, which has been running at 6.7 percent.
Even so, the government last month requested that dozens of research institutes
and universities submit analyses on how different regions and industrial sectors would be affected if the trade war worsened and what the effect would be on unemployment and the financial markets.
China sold about $500 billion worth of goods to the United States last year, accounting for nearly a quarter of its total exports and about 4 percent of national economic production.
If the United States imposes tariffs on all Chinese goods, even pessimistic Chinese economists contend the country might suffer only a 1 percent drop of output from lost exports. China so dominates some industries, such as smartphone manufacturing, that tariffs may not do much damage. In other industries, China might lose business to rivals like South Korea but find opportunities to export its goods to other markets.