China's Leaders Are Divided Over Trade War With U.S.

Aug 26, 2019
Originally published on August 26, 2019 5:15 pm

When the White House decided to levy tariffs on goods from China, U.S. leaders were divided on whether a prolonged trade dispute was a wise course of action.

Now, so is Beijing.

China's leadership is being confronted by government factions offering contradictory approaches to resolving the ongoing trade war with the U.S. Some argue for cutting a deal as quickly as possible to save China's economy; a vocal and growing group of hawks argues China should push back against the United States and avoid an agreement at all costs.

As U.S. and Chinese negotiators head into their 13th round of trade talks in September, both sides have been given unclear signs about what they hope to achieve from a dispute that has outlasted all expectations.

On Monday, the two governments appeared to be seeking to lower tensions. China's Vice Premier Liu He, its lead trade negotiator, said, "China is willing to resolve its trade dispute with the United States through calm negotiations and resolutely opposes the escalation of the conflict." Trump said he agreed, telling reporters after a Group of Seven meeting in France that he thought the vice premier's comment was "a good thing."

That followed a slew of tit-for-tat tariffs.

On Aug. 1, President Trump walked back a tentative truce discussed on the sidelines of the Group of 20 summit in Osaka, Japan, by tweeting his decision to impose an additional 10% tariff on $300 billion worth of Chinese goods on Sept. 1. Some of those import duties have now been delayed until Dec. 15, but many in China saw the reversal as a betrayal.

Since then, trade relations have only worsened. Last week, China announced new, matching tariffs on $75 billion of U.S. goods and said it would resume duties on U.S.-made automobiles and car components. The U.S. immediately countered by raising the rates of existing tariffs on more than $400 billion of Chinese goods.

"Once the two presidents reached an agreement in Osaka, conditions should remain at the status quo so both sides can start negotiations for a good solution," says He Weiwen, a former commercial attaché at Chinese consulates and a trade expert. He wonders now whether the Trump administration is negotiating in earnest or simply buying time. "It seems that the U.S. side is closing a door on talks," he says. "That's very dangerous."

Frustration among China's leadership is running high, even at the Foreign Ministry, which has been the most vocal in publicly calling for a U.S. trade deal.

"There is no bottom line. And anytime you set up a bottom line, it all can very easily be broken," says Ruan Zongze, vice president at the China Institute of International Studies, a think tank run by the Foreign Ministry.

Continued U.S. escalation has cast doubts in China about whether the U.S. would even honor the terms of a trade deal, according to Ruan. "Many in China will say, 'If we make a deal, could this deal really work, or work for how long?' Trust is disappearing," he says.

A cohort of hawks, many from China's powerful military-industrial complex, is rising to the fore on the issue. They argue a trade deal is unnecessary, in stark contrast to China's diplomatic and commercial ministries that publicly welcome an agreement.

"Today, China is fighting two wars on one battlefield with the U.S. — a composite of economic and military conflicts," Dai Xu, a senior colonel in China's air force and an outspoken current affairs commentator, wrote in an online article in May. "Trump will first take China's money and then take our lives," Dai wrote in a commentary in January.

Dai says Beijing's trade frictions with Washington mark the beginning of a "protracted war," a concept popularized by Chairman Mao Zedong during China's war against Japan and now increasingly used in state media commentaries to describe China's trade negotiation strategy. "Much as in the original 'protracted war,' in this case we can also send the seemingly invincible invaders to a hell for failures," Dai wrote in May.

Dai and his supporters are calling for a war of attrition, in which China outlasts its rivals, even at the cost of global trade. The idea is attractive among those who believe the country's one-party system and control over its most significant monetary and financial levers would allow it to beat the U.S. in a game of chicken.

"The result of the trade war between China and the United States is not determined by calculating how many chips the two countries have to play, but by their ability to bear the damage. You may have more chips but your damage tolerance is lower than mine," Shen Yi, an international relations professor at Fudan University in Shanghai, wrote on a state-run news site in June.

But significant dissenters believe China has overplayed its hand.

"Between China and the United States, the U.S. is still the strong one and China is the weak one. Therefore, China attaches more importance to good Sino-U.S. relations," Jin Canrong, associate dean of international studies at Renmin University and one of China's most prominent foreign policy commentators, stated in comments that went viral in July.

Speaking at a Shanghai corporate event, Jin went on to boldly predict a trade deal would be reached no later than November as pressure from tariffs diminishes the country's economic prospects: "If the trade war has been fought for a long time and the mid-to-high-end supply chains leave China, that would greatly damage the potential of China's future development," he said.

China has reported weak economic figures this summer; Germany's economy contracted from April through June. Economists say uncertainty over trade policies has contributed to a global slowdown.

Moderate Chinese economists now hope that the trade war will at least lend policymakers cover to shepherd through market reforms to expand foreign investment rules and open China's financial system to foreign players — reforms critics say have come too late.

"The party line and also the general consensus is that China should open up more," Wang Huiyao, president of the Center for China and Globalization, a Beijing-based think tank that advises the government on trade and economic issues, tells NPR.

Wang says the two countries should strike a trade deal quickly so China can focus its energy on policies like accelerating state-owned enterprise reforms.

"You can't look for a perfect deal," Wang says. "It's up to President Trump to call a victory anytime."

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Now to how people in China view their country's trade dispute with the United States. NPR's Emily Feng has been talking to prominent Chinese academics and advisers. She found many of them are not sure the U.S. can be trusted. Here's her report from Beijing.

EMILY FENG, BYLINE: Tucked away off a highway intersection is a stately yellow mansion with a sweeping double staircase. In another era, it was the embassy for the Austro-Hungarian Empire. Today it houses a Ministry of Foreign Affairs think tank.

Can you introduce yourself?

RUAN ZONGZE: Well, my name is Ruan. I'm a senior fellow at China Institute of International Studies in Beijing.

FENG: I met Ruan Zongze just as trade tensions took a turn for the worse in July. President Trump had just tweeted he would impose more tariffs. China countered by dropping the value of its currency and slapping more tariffs on U.S. goods. The U.S. then raised existing tariffs. These tit for tat retaliations left trade agreements made only weeks earlier in tatters. Ruan says it has undermined trust because the U.S. keeps asking for more.

RUAN: Any time you set a bottom line, and it'll - can be very easily be broken.

FENG: And belief in China that the U.S. would uphold its side of a trade deal has plummeted.

RUAN: If we make a deal, can this deal really work or work for how long? Lot of questions.

FENG: These questions and doubts don't bode well for the 13th round of trade talks in September. The two countries were close to a deal in May - until the U.S. walked out, alleging China made sudden changes to the deal. In the months since, negotiators have been rebuilding trust in preparation for September. But with these new proposed tariffs on the table...

HE WEIWEN: It seems that the U.S. side is closing a door of talks. That's very dangerous.

FENG: He Weiwen is a trade expert and former commercial attache with the Chinese Foreign Ministry. If the U.S. plays hardball, he's of the view that China can bear the economic and political pressures of a prolonged trade war better and longer than the U.S. can.

HE: As to the - politically, I think China, of course, enjoys the vast advantages. We are highly centralized leadership, and we are unified in the country.

FENG: Others disagree, though. China's economy is growing at the slowest rate in three decades. And the fear is American tariffs are worsening the slowdown. Jin Canrong is with the Renmin University School of International Studies and one of China's most prominent foreign policy commentators.


JIN CANRONG: (Through interpreter) China is afraid of its supply chains being broken. It's not a big deal if lower-end supply chains leave China. But if medium- and high-tech supply chains leave, that will be worrying.

FENG: Jin is speaking at a Shanghai gathering in late July and captured in a video that went viral in Chinese social media. He's explaining a long trade war could force high-tech manufacturing to leave China and boldly predicts a trade deal will be reached by this November.


JIN: (Through interpreter) The U.S. is strong, and China is still weak. So we care more about stable relations.

FENG: But a growing school of thought now says China shouldn't even pursue a trade deal because the U.S. will simply find other ways to undermine China. The most prominent in this camp is Dai Xu, a senior colonel and professor at one of China's top military universities. Here's Dai speaking at a big military innovation forum earlier this year.


DAI XU: (Through interpreter) The problem is that after an agreement is reached, the Americans will never give up on containing China. So this trade war is just a prelude.

FENG: Dai has popularized an approach called the protracted war. It's borrowed from Chairman Mao Zedong's writings about the civil war with Japan. The theory goes that, whether against Japan or the U.S., in a war for survival, China was outlast the enemy through guerrilla tactics and self-reliance.


DAI: (Through interpreter) Trump's strategy on China is to take our money first and then take our lives. After the trade agreement is done, the second phase of the Sino-U.S. competition will begin.

FENG: The second phase, Dai says, being an arms race towards technology dominance.

Emily Feng, NPR News, Beijing. Transcript provided by NPR, Copyright NPR.