U.S., China on cusp of economic Cold War
WASHINGTON — President Donald Trump is confident the United States is winning its trade war with China. But on both sides of the Pacific, a bleaker recognition is taking hold: The world’s two largest economies are in the opening stages of a new economic Cold War, one that could persist well after Trump is out of office.
“This thing will last long,” Jack Ma, the billionaire chairman of Alibaba Group, warned a meeting of investors Tuesday in Hangzhou, China. “If you want a shortterm solution, there is no solution.”
Trump intensified his trade fight this week, imposing tariffs on $200 billion worth of Chinese goods and threatening to tax nearly all imports from China if it dared to retaliate. His position has bewildered, frustrated and provoked Beijing, which has responded with its own levies on U.S. goods.
The diplomatic stalemate has many in the business and policy communities considering the possibility that the United States may be in a protracted and economically damaging trade fight for years to come and wondering what, if anything, America will gain.
Kevin Rudd, a former prime minister of Australia and expert on China, said 2018 signals “the beginnings of a war of a different type: a trade war, an investment war and a technology war between the two great powers of the 21st century, with an uncertain landing point.”
The latest tit-for-tat leaves little room for concessions as both side dig in their heels and China tries to remain strong, despite an economic softening Trump sees as an opening to force Beijing’s hand.
Chinese growth in investment, factory production and consumer spending have all slowed this year, and its economic growth has slowed alongside. The situation is expected to worsen as effects of the escalating U.S. tariffs ramp up.
While the United States made overtures toward China in recent days to talk trade in Washington this month, some officials said they now doubt Beijing will engage again at a high level until after the midterm elections in November, when President Xi Jinping may meet Trump at an economic summit in Buenos Aires.
Trump himself seemed to dangle the prospect that he, and he alone, could broker a resolution that threatened to cause economic pain to companies and consumers on both sides of the Pacific.
“Hopefully, this trade situation will be resolved, in the end, by myself and President Xi of China, for whom I have great respect and affection,” Trump said in his statement announcing the tariffs.
Yet it is not clear that either side will see a reason to back down. Aides to Trump say the president believes that the United States has the upper hand on China, with an ability to impose tariffs on a far larger number of goods than the Chinese can match given that America imports far more than it exports. And while the tariffs are unpopular with Republican lawmakers, farmers and manufacturers, his trade approach remains popular with his political base.
The Chinese side has its own political reasons to avoid capitulation. Acceding to Trump would be considered a sign of weakness for Xi, according to analysts.
Inside the White House, there remains a pitched battle between those who want to make a deal with Beijing and those who are determined to keep piling on pressure to force a more radical change in its trade practices. At the moment, the hard-liners have Trump’s ear.
“You would expect the administration to have tabled a negotiating text with a clear set of commitments, but that has apparently not been done,” said Daniel Price, a former trade adviser to President George W. Bush. “There are some in the administration who see tariffs as an end in themselves.”