ECO­NOMIC COLD WAR LOOM­ING

The Charlotte Observer (Sunday) - - Front Page - BY MARK LANDLER New York Times

The trade war be­tween the world’s two largest economies, the U.S. and China, could per­sist well af­ter Pres­i­dent Trump is out of of­fice.

Pres­i­dent Don­ald Trump is con­fi­dent that 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 short-term 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 an ex­pert on China, said in an in­ter­view that 2018 sig­naled “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.”

Signs of fall­out were al­ready ap­par­ent: Ma backed off a pledge he had made in a meet­ing with Trump last year to cre­ate 1 mil­lion jobs in the United States, telling the Chi­nese news site Xinhua that “the prom­ise was made on the premise of friendly U.S.China part­ner­ship and ra­tio­nal trade re­la­tions,” a premise he said no longer ex­ists. “Trade is not a weapon,” he said.

The lat­est tit-for-tat leaves lit­tle room for con- ces­sions, at least in the in­terim, as both coun­tries dig in their heels and China tries to re­main strong, de­spite an eco­nomic soft­en­ing that Trump clearly 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 doubted Bei­jing would en­gage again at a high level un­til af­ter the midterm elec­tions in No­vem­ber, when Pres­i­dent Xi Jin­ping may meet Trump on the side­lines of an eco­nomic sum­mit meet­ing 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.

And they see no sign that China is will­ing to give up on Made in China 2025, an in­dus­trial pro­gram that aims for dom­i­nance in ro­bot­ics, ar­ti­fi­cial in­tel­li­gence, and other high tech in­dus­tries that have been the do­main of the United States and Europe and that Trump has iden­ti­fied as a pol­icy ini­tia­tive that must be stopped.

While Chi­nese of­fi­cials have ex­pressed a will­ing­ness to get rid of the name Made in China 2025, they have been much more cau­tious about ac­cept­ing lim­its on some of the cru­cial fea­tures of the coun­try’s in­dus­trial pol­icy, like big loans from sta­te­owned banks at very low in­ter­est rates to fa­vored in­dus­tries.

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 M. Price, a for­mer trade ad­viser to Pres­i­dent Ge­orge W. Bush. “There are some in the ad­min­is­tra­tion who see tar­iffs as an end in them­selves.”

Price said the Trump ad­min­is­tra­tion had done a good job of cat­a­loging China’s abuses: theft of in­tel­lec­tual prop­erty, forced trans­fer of tech­nol­ogy from for­eign com­pa­nies, preda­tory joint ven­ture agree­ments. But it has failed to mar­shal a coali­tion to con­front China, in­stead pro­vok­ing sep­a­rate trade fights with the Euro­pean Union, Ja­pan, Canada and Mex­ico by im­pos­ing tar­iffs on steel and alu­minum and threat­en­ing ad­di­tional taxes on im­ported cars.

“Do­ing this with­out the EU and Ja­pan fully on board as though Chi­nese un­fair trade prac­tices were only a bi­lat­eral prob­lem is wrong­headed and cer­tainly less ef­fec­tive,” he said. “But it’s very hard to gal­va­nize your al­lies when you im­pose steel and alu­minum tar­iffs on them and threaten auto tar­iffs.”

STEPHEN B. MOR­TON AP

A truck passes a stack of 40-foot China Ship­ping con­tain­ers in July at the Port of Sa­van­nah in Sa­van­nah, Ga. The path to peace in a trade war be­tween the United States and China is get­ting harder to find as the world's two big­gest economies pile ever more taxes on each other’s prod­ucts.

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