China fights the trade war at home

Bei­jing is pre­par­ing the pub­lic for the com­ing storm

Financial Mirror (Cyprus) - - MARKETS - By Phillip Or­chard

The first round of U.S. tar­iffs and Chi­nese counter-tar­iffs came into ef­fect on Fri­day. All told, they will di­rectly af­fect some $68 bil­lion in goods. On July 15, the U.S. is ex­pected to im­pose more tar­iffs tar­get­ing $16 bil­lion in Chi­nese goods, with pro­por­tional Chi­nese re­tal­ia­tory mea­sures to fol­low. Things are likely to es­ca­late from there. Whether or not this spat should be de­fined as a full-blown trade war, both sides are now fir­ing with live am­mu­ni­tion, and nei­ther side will es­cape un­scathed.

In some ways, it’s not an equal fight. China is more de­pen­dent on U.S. ex­ports than the U.S. is de­pen­dent on Chi­nese im­ports, and the Chi­nese econ­omy is far more frag­ile than that of the U.S., so it’s rea­son­able to con­clude that the United States is head­ing to bat­tle from a po­si­tion of strength. Still, it’s not just about who can punch the hard­est on the eco­nomic front, but also about who can take the most hits with­out fac­ing ma­jor po­lit­i­cal blow­back at home. And here, China’s abil­ity to di­rect state sup­port to tar­geted in­dus­tries, crack­down on dis­sent and shape pub­lic per­cep­tions gives it some ad­van­tages, es­pe­cially against a di­vided ad­ver­sary head­ing into an elec­tion sea­son.

Ear­lier this week, we got an in­side look into how China is at­tempt­ing to use its me­dia con­trols to steel pub­lic re­solve for the hits to come. The China Dig­i­tal Times, a U.S.-based cen­sor­ship-mon­i­tor­ing site, pub­lished what it claims is a leaked cir­cu­lar from Chi­nese au­thor­i­ties out­lin­ing how state me­dia should cover the trade spat. We can­not con­firm the doc­u­ment’s au­then­tic­ity, but its con­tents jibe with nar­ra­tives Chi­nese state me­dia has be­gun push­ing – and hint at in­ten­si­fy­ing pres­sures that Bei­jing is most cer­tainly feel­ing. Be­low we pro­vide some ex­cerpts from the al­legedly leaked doc­u­ment and out­line how these state­ments can be used to shape pub­lic dis­course on trade.

What Bei­jing Is Re­ally Say­ing

“The trade con­flict is re­ally a war against China’s rise, to see who has the greater stamina. This is ab­so­lutely no time for ir­res­o­lu­tion or ret­i­cence.”

The theme of “us against the world” has been cen­tral to sus­tain­ing pub­lic sup­port on any front where Bei­jing’s moves have trig­gered an in­ter­na­tional back­lash, from hu­man rights crack­downs at home to as­sertive­ness in the South China Sea. And it’s a po­tent one. It re­flects a his­tor­i­cal ef­fort to per­pet­u­ate and har­ness the power of China’s defin­ing nar­ra­tive since its de­feat in the First Opium War in 1842: that China was bul­lied, carved up and sub­ju­gated by for­eign im­pe­ri­al­ists dur­ing the so-called Cen­tury of Hu­mil­i­a­tion, sub­ject­ing what was once the world’s pre-em­i­nent civil­i­sa­tion to un­told suf­fer­ing. And if the Chi­nese peo­ple fail to unite be­hind their lead­ers, ac­cord­ing to this nar­ra­tive, out­side pow­ers would read­ily do it again. Chi­nese lead­ers have been adept at nurs­ing col­lec­tive griev­ances as part of the never-end­ing quest for na­tional re­ju­ve­na­tion since even be­fore the Com­mu­nist Party took power in 1949. But it’s not just pro­pa­ganda. Rather, it speaks to an en­dur­ing anx­i­ety em­bed­ded deep in the na­tional psy­che that, de­spite China’s more re­cent gains and bur­geon­ing na­tional con­fi­dence, it could all come un­done yet again.

“All me­dia should pre­pare well for pro­tracted con­flict. Don’t fol­low the Amer­i­can sides’ fluc­tu­at­ing dec­la­ra­tions.”

China thinks the trade fight won’t be over quickly. This is, in part, be­cause it’s un­clear what the White House would need to claim vic­tory and move on. If the fight were just about the trade deficit, this wouldn’t nec­es­sar­ily be the case. In trade ne­go­ti­a­tions, China re­port­edly of­fered to buy be­tween $25 bil­lion and $70 bil­lion more in U.S. stuff (mostly en­ergy and agri­cul­tural goods) an­nu­ally to bring the deficit down some­what. And as the Chi­nese con­sumer mar­ket grows, it’s likely to be buy­ing more and more U.S. goods in the com­ing years any­way. Al­ready, China is the fourth-largest mar­ket for U.S. ex­ports, with China-bound goods grow­ing some 115% over the past decade to nearly $130 bil­lion each year.

“Do not make fur­ther use of ‘Made in China 2025,’ or there will be con­se­quences”

“[China should] strike ac­cu­rately and care­fully, split­ting apart dif­fer­ent do­mes­tic groups in US”

“Don’t at­tack Trump’s vul­gar­ity; don’t make this a war of in­sults.”

The Real Fight Is Over Tech­no­log­i­cal Power

But the real fight is over China’s quest to be­come a dom­i­nant tech­no­log­i­cal power – and the mer­can­tilist poli­cies it’s us­ing to leapfrog the U.S. and other west­ern pow­ers in the high-tech realm. Here, it can­not back down with­out un­der­min­ing its core na­tional strat­egy. Its reliance on low­cost man­u­fac­tur­ing has left it vul­ner­a­ble to ris­ing com­pe­ti­tion from its lower-cost neigh­bours, pro­duc­tiv­ity de­clines as its work­force ages, and down­turns in West­ern economies – as was ex­posed fol­low­ing the global fi­nan­cial cri­sis be­gin­ning in 2008, when Chi­nese ex­ports con­tracted sharply. If any­thing, the U.S. moves to squeeze it on this front will only re­in­force the be­lief in Bei­jing that it must be­come less re­liant on for­eign tech­nol­ogy by what­ever means nec­es­sary. But the U.S. is loath to back down as well. Its com­par­a­tive ad­van­tage over lower-cost man­u­fac­tur­ers like China is in high-tech goods and ser­vices. And the real Chi­nese threat to long-term U.S. eco­nomic com­pet­i­tive­ness and strate­gic in­ter­ests is that China eats into this ad­van­tage.

“Made in China 2025” is China’s con­tentious plan to be­come a leader in the in­dus­tries likely to mat­ter most over the com­ing cen­tury (for both com­mer­cial and mil­i­tary ap­pli­ca­tions), such as semi­con­duc­tors, robotics, aero­space, green en­ergy and biotech. It was con­ceived as a ral­ly­ing cry at home, a roadmap for how the Com­mu­nist Party would ful­fill its pledge to make China a world-class power. But Bei­jing now sees the slo­gan as giv­ing the U.S. a fixed tar­get with which to gal­vanise sup­port for Pres­i­dent Don­ald Trump’s tar­iffs and shift fo­cus from the trade deficit to the tech­no­log­i­cal threat.

The trade war is di­vi­sive, and Trump doesn’t have much sup­port on ei­ther side of the aisle or with al­lies for tar­iffs in­tended to re­vive U.S. steel and alu­minum in­dus­tries at the ex­pense of U.S. con­sumers, in­dus­tries that rely on cheap Chi­nese im­ports and in­dus­tries likely to be harmed by Chi­nese re­tal­ia­tory mea­sures. But there’s broad agree­ment among both par­ties and abroad that China’s mer­can­tilist tech poli­cies are a threat (even if there are ma­jor dis­agree­ments in the U.S. over Trump’s plan to ad­dress them). To curry sup­port from Trump op­po­nents in the U.S. and abroad, Bei­jing is try­ing to por­tray it­self as a cham­pion of free trade fight­ing back against a pres­i­dent hell­bent on dis­man­tling a sys­tem that made much of the world rich, how­ever disin­gen­u­ous this por­trayal may be. In other words, Bei­jing is try­ing to change the sub­ject. Re­lent­lessly tout­ing a high­pro­file plan that in­volves prac­tices like forc­ing for­eign firms to hand over tech­nol­ogy in ex­change for the right to op­er­ate in China – not to men­tion ac­tiv­i­ties like out­right tech­no­log­i­cal theft – wasn’t help­ing.

China Con­fronting Trump

China’s best hope is that the trade war be­comes po­lit­i­cally un­ten­able for Trump, par­tic­u­larly with midterm elec­tions just around the cor­ner. And this means di­rect­ing coun­ter­mea­sures at po­lit­i­cally in­flu­en­tial in­ter­est groups. Ac­cord­ing to Brook­ings, for ex­am­ple, Trump won 82% of the coun­ties ex­pected to see job losses from Chi­nese re­tal­ia­tory mea­sures. Amer­i­can farm­ers, who’ve rou­tinely ex­er­cised con­sid­er­able sway on U.S. trade pol­icy, are squarely in Bei­jing’s crosshairs, with key U.S. crops like soy­beans, wheat and corn fac­ing 25% tar­iffs.

China has am­ple op­tions in this re­gard. Ac­cord­ing to a study by Ox­ford Eco­nomics, some 2.6 mil­lion jobs in the U.S. were cre­ated by the com­bi­na­tion of U.S. ex­ports of goods and ser­vices to China and bi­lat­eral for­eign in­vest­ment flows. The same study said cheap Chi­nese goods such as wash­ing ma­chines and so­lar pan­els (both of which were tar­geted with tar­iffs in Jan­uary) have saved the av­er­age Amer­i­can house­hold some $850 an­nu­ally. Gen­eral Mo­tors sold more than a mil­lion more cars in China last year than in the United States. Ac­cord­ing to the Peter­son In­sti­tute, some 60% of U.S.-bound ex­ports from China were pro­duced by multi­na­tional firms, some of them Amer­i­can, rather than Chi­nese-owned com­pa­nies.

Know thy enemy’s strengths. Don’t rally his base. Keep him fo­cused on trade dis­putes with Canada, Japan and the Euro­pean Union. Don’t give him rea­son to put the spot­light on al­leged Chi­nese hu­man rights vi­o­la­tions that speak louder than the pres­i­dent’s words.

China’s Chrome-Plated Fragility

Bei­jing’s abil­ity to con­trol me­dia nar­ra­tives and shape pub­lic per­cep­tion at home is in­deed a strength. But its need to do so points to its un­der­ly­ing weak­nesses. China is fac­ing an eco­nomic reck­on­ing as it en­ters a pro­longed phase of slow­ing growth, and Bei­jing is try­ing des­per­ately to push through am­bi­tious eco­nomic re­forms be­fore that day comes. Its need to re­struc­ture its econ­omy, whit­tle down a stag­ger­ing debt load and wres­tle pol­lu­tion into sub­mis­sion, while also main­tain­ing high em­ploy­ment and broad back­ing for the regime, has it per­form­ing a high-wire act. Al­ready, amid Bei­jing’s crack­down on shadow lend­ing, we’re see­ing a grow­ing wave of de­faults among pri­vate sec­tor firms that had grown fat on lim­it­less credit. Last win­ter, anti-pol­lu­tion mea­sures led to wide­spread nat­u­ral gas short­ages. In May, the coal-rich city of Leiyang failed to make pay­roll amid rev­enue short­falls stem­ming from Bei­jing’s crack­downs on high-pol­lut­ing in­dus­tries and over­ca­pac­ity re­forms. Growth in ex­ports, re­tail sales and fixed-as­set in­vest­ment is slow­ing.

So, the trade war is com­ing at a pre­car­i­ous time for China. And in re­cent weeks, we’ve started to see hints of dis­sent from in­flu­en­tial fig­ures and me­dia out­lets ask­ing the ques­tion if China can re­ally af­ford to fight a two-front war against the U.S. on trade and against its own in­ter­nal woes. Bei­jing doesn’t ex­actly have a choice in ei­ther mat­ter. Dark clouds are gath­er­ing ei­ther way; per­haps its only op­tion is to pre­pare the pub­lic for the storm.

Trade dis­putes arise when one gov­ern­ment be­lieves an­other gov­ern­ment is vi­o­lat­ing an agree­ment or com­mit­ment it has made in the World Trade Or­gan­i­sa­tion (WTO). Since 1995, the WTO has played a key role in end­ing these dis­putes with over 500 of them brought since 1995 with 350 rul­ings is­sued.

As of April of this year, the WTO says that the United States was in­volved in 52 trade dis­puted with the Euro­pean Union - it brought 33 of those while 19 were brought against it.

There were 32 dis­putes in to­tal in­volv­ing trade with China while with Canada, there were 26, most of which were brought by the U.S.

(Source: Statista)

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.