Trump-China trade war: a Q&A on its implications
Los Angeles Times
BEIJING — President Donald Trump and his supporters say he is winning his trade war with Beijing. China is dealing with a mountain of debt, and its growth and investment is slowing. And if Mr. Trump keeps on pushing, can he win a trade war and, at what cost?
Q: What is Mr. Trump’s real objective?
A: No one is quite sure how far Mr. Trump plans to go in pressuring China with hefty trade tariffs. Washington accuses China of stealing American intellectual property and demands it open its economy up more to foreign competition. China insists it is playing by World Trade Organization rules.
Some analysts think the real U.S. objective is a gradual “decoupling” of the world’s two biggest economies, hitherto deeply entwined and interdependent. The U.S. government has blocked investments by several prominent Chinese companies — particularly in the telecommunications and high-tech fields — as threats to American security, and Chinese investment in the U.S. economy has plummeted. Meanwhile, some U.S. companies are planning to move operations out of China if the trade war drags on.
“There is no doubt that U.S.-China relations have flipped, from some kind of hedged, competitive engagement, to all-out competition on numerous fronts,” said analyst Richard McGregor of the Sydney, Australiabased Lowy Institute, who is currently in Washington. “It’s not just about trade. It’s geopolitical, military, diplomatic and economic, which is why there’s no real endpoint in sight. In many respects, it’s also an end-of-history-type competition between rival political systems.”
He said the idea of the economies decoupling had taken hold in Beijing, too.
“Both sides want to untangle parts of their economic relationship on national security grounds, to ensure that they don’t rely on each other in any pivotal areas. Business and trade used to provide some ballast to the geopolitical competition. Now, business is just another battleground.”
One interpretation popular in China is that the economic conflict is all about “containing” its rise as a high-tech global leader. The longer the warfare continues, the more uncertain its outcome, as both sides ratchet up pressure in ways designed to antagonize.
Q: Is Mr. Trump’s trade war putting the Chinese economy under so much pressure that it is slowing down?
A: China’s economy is slowing and may slow down further, analysts warn. But it has nothing to do, they say, with Mr. Trump or the trade war. Instead, it is related to Chinese government policies since 2016 to bring the country’s mountain of debt under control.
For years, Chinese growth was fueled by credit, some of it issued by murky institutions known as “shadow banks” because they operated outside the formal banking sector, making it difficult for the government to control. Between 2008 and 2017, China’s credit grew faster than that of any other economy in history: by $29 trillion, compared with gross domestic product growth of $7 trillion.
It seemed the normal rules of boom and bust did not apply. By mid-2017, China’s debt reached 256 percent of GDP. Some economists believe that China’s powerful levers over its economy, its vast assets and high savings levels mean that it is shock-proof in a way that other countries are not. But others say those days are coming to an end.
Chinese GDP growth eased from 6.8 percent in the first quarter to 6.7 percent in the second, and it is expected to slow further in coming months. Spending on infrastructure was 6 percent in the first half, compared with 8.6 percent the previous year.
China has been moving to reduce bad loans by banks and off-budget loans by local governments, leading to an economic slowdown as credit tightens. Those moves are complicated by the trade war, which further threatens growth and puts the Chinese economy under additional pressure.
Q: Is China’s economy in danger of a major shock because of the debt mountain?
A: Economists have been arguing about this for years without consensus. But China has recognized the problem and begun to restructure its economy.
Some believe that the Trump administration is pushing China hard right now because of its economic vulnerability, seeing an opportunity to back it into a corner and slow China’s rise.
JP Morgan chief China economist Zhu Haibin predicted last month that the trade war would cost China 700,000 jobs as companies move factories out, independent online financial news site Caixin reported. .
Q: Do China’s economic problems mean that Mr. Trump can win the trade war? And what are the dangers of pressing on?
A: Mr. Trump seems so confident of victory in the trade war that there is little likelihood he will ease back on pressure. He told reporters Monday that China badly wanted new trade talks, but that “frankly it’s too early to talk … because they’re not ready.”
But the problem with trade wars that drag on is that they have a way of souring entire relationships. Good trade relations can mitigate military friction. But this week’s near collision between the U.S. destroyer Decatur and a Chinese warship in the South China Sea showed the potential for a serious military clash. The vessels came within 50 yards of one another. The United States accused the Chinese ship of “unsafe and unprofessional” conduct while China warned the United States to cease “provocative” action.
There are other frictions: American sanctions on a Chinese military agency and U.S. sales of military equipment to Taiwan have angered China. Mr. Trump has also accused China of interfering in the U.S. midterm elections. And after the recent arrest of a Chinese student for spying, the Trump administration announced moves to limit visas to Chinese students in high-tech fields.