China: Bristling at Trade Threats

Published on March 15, 2018

White House trade adviser Peter Navarro, known for his particularly harsh views on China, announced that President Trump will “over the next few weeks” consider the recommendations presented by US Trade Representative Robert Lighthhizer to counter allegations of systematic violations of US Intellectual Property Rights by Chinese firms and Beijing under “Section 301.”

*** The threat of action on IP is deemed by Beijing to be — by multiple orders of magnitude — above and beyond any fight over aluminum and steel exports (see SGH 3/6/18: “China-US: Trade Talk Limbo”). Chinese officials see any invocation of redress under the unilateral Section 301 route of the US Trade Act of 1974 as “an aggressive tack” that would in practice bypass the more recently established World Trade Organization platform for trade relations and disputes.

*** Crucially, Chinese officials have not taken to the reported threat of tariffs of $60 billion, or even $30 billion, lightly, and warn that if taken further, China will, for its part, not succumb to “Trump’s blackmail” and will embark on a trade war with the US, and use measures that are “unprecedented in their toughness and severity.” ***

Trump’s “Opening Bid”

As of last night, senior sources in Beijing did not yet interpret reports that President Trump had asked his staff to seek tariffs of up to $60 billion on Chinese goods, or that he would press China to reduce its trade surplus by $100 billion, as a desire to embark on a trade war with China, per se. Rather, they read it as an “opening bid, or pre-emptive strike,” before bilateral trade talks were to get underway.

Beijing officials, we are told, are expecting bilateral talks to be scheduled for early April, based on a bilateral call between Trump and Xi last week that was focused on North Korea, but where Xi did try and make the case for opening negotiations on trade. While entirely plausible, we have no further details on what level such talks might be held at, nor of any specific date for such talks as of now.

Officials in Beijing nevertheless stress that if the Trump Administration follows through on its threats to impose major trade tariffs on Chinese goods, they do not believe the US can meet its goal of reducing the $100 billion trade deficit with China by simply putting tremendous pressure on China. Reducing America’s trade deficit with China cannot be unilateral, and will require action, they say, from both sides, not just China.

Chinese officials further warn that the aggressive public positions taken by the White House and pushed in the open by both Navarro and Lighthizer do matter, a great deal indeed, and that China will not succumb to “Trump’s blackmail.”

That is, they say, for two “fundamental,” political reasons:

First is that, lest one forget, President Xi Jinping has become “the most powerful leader since China’s reform and opening up in 1978.” Second is a sharp reminder that China now represents about 70% of the US economy today, as compared to 30% in the 2000s, and 10% in 1990s.

“For the sake of the country,” one senior official states, “and Xi’s own dignity, President Xi, who has just been given the supreme status by the constitution of the People’s Republic of China, will surely fight back against Trump’s unreasonable and reckless [potential actions] on IPRs [intellectual property rights].”

The result, they conclude, must be a compromise between the two sides to seek consensus, and ensure the steady growth of bilateral trade. That appears, to date, to be far from settled.

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