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Trump’s ‘Easy’ Trade War Hits Snags as China Plays the Long Game

EconomyMay 25, 2019 07:10AM ET
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© Bloomberg. MONESSEN, PA - JUNE 28: Presumptive Republican candidate for President Donald Trump speaks to guests during a policy speech during a campaign stop at Alumisource on June 28, 2016 in Monessen, Pennsylvania. Trump continued to attack Hillary Clinton while delivering an economic policy speech targeting globalization and free trade. (Photo by Jeff Swensen/Getty Images)

(Bloomberg) -- In June 2016, presidential candidate Donald Trump stood between bales of crushed aluminum and a crowd of supporters in a factory outside of Pittsburgh and made a promise on trade that wasn’t hard to keep.

“If China does not stop its illegal activities, including its theft of American trade secrets, I will use every lawful -- this is very easy. This is so easy. I love saying this,” he told workers at the recycling firm Alumisource, a former steel plant in Monessen, Pennsylvania. “I will use every lawful presidential power to remedy trade disputes.”

Three years later, he has clearly delivered on the pledge.

Trump’s tariff-driven attack against the world’s No. 2 economy has shown that expanding trade powers has indeed been the easy part. But as events this week show, winning a trade war against China -- which Trump once tweeted would also be “easy” -- looks increasingly like a more difficult and protracted endeavor than anticipated, with Beijing now showing more signs of digging in than capitulating.

Trump’s hawks have been arguing ever since the president took office that the only way to get China to make meaningful changes to what some openly call a “deviant economic model” is to continue punching it in the nose until you force surrender. Yet the big question looming now is whether that belligerent approach may be backfiring with daunting consequences for the global economy.

After Trump escalated his tariff war on Chinese imports earlier this month and blacklisted Chinese telecom giant Huawei Technologies Co., Chinese President Xi Jinping called on citizens to join a “new Long March,” prompting echoes of that call in Chinese state media.

“All of the Chinese people are ready to embark on a new ‘Long March’ journey with greater courage and resilience and will never yield to foreign bullying and assault," state-run Xinhua News Agency said in a commentary on Friday.

The hope for a respite from rising tensions now rests on a planned meeting between Trump and Xi on the sidelines of a late-June Group of 20 Summit in Japan. But it’s not clear that meeting will even take place. Cui Tiankai, China’s ambassador to the U.S., told Bloomberg Television on Friday that there had not yet been any official discussions about a meeting, though “the possibility is always open.”

“If things continue the way they are why would Xi want to meet with Trump,” said Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics. “Every day the wedge between the U.S. and the Chinese side seems to get bigger and there’s no sign of any bridges being built.”

China is also not the only one showing signs of preparing for a longer trade war.

Trump this week announced a new $16 billion aid program for farmers caught in the trade wars to whom just weeks ago he had been promising a deal with China that would mean huge new purchases of their crops. He also has settled a dispute with Canada and Mexico over steel tariffs, which had led to retaliation by the U.S. neighbors against agricultural exports.

Commodity markets are reflecting the gloomy prospects for the trade talks.

The price of U.S. soybeans, which China has stopped purchasing during the trade feud, is hovering close to the lowest level in a decade just as planting season gets under way. A headline this month in the Des Moines Register, the biggest newspaper in Iowa, underscored the pain: “It can’t get any worse.”

Clothing, Smartphones

A bigger potential economic and political risk now confronting Trump is the risk that the next wave of his tariffs will hit consumer staples like children’s clothing and smartphones imported from China and thus envelop the entire U.S. economy.

The fear of rising prices caused Treasury Secretary Steven Mnuchin to pick up the phone and speak with Walmart (NYSE:WMT) Inc. Chief Financial Officer Brett Biggs, who has warned that duties on Chinese imports will raise prices for American consumers.

“I am monitoring this situation carefully,” Mnuchin told the House Financial Services committee on Wednesday.

China is turning the tables on the U.S., accusing the Trump administration of overreach and government intrusion into private enterprise. Though many in Washington believe the administration has valid security concerns, the restrictions on Chinese companies such as Huawei, in particular, have raised fears of a bigger technological war that could backfire against the U.S.

Tech Progress

“What are people really up to under the pretext of national security? We don’t know,” Cui said Friday. “Can they really stop the technological progress? Can they really deprive people of the right to benefit from the technologies? I don’t think so. And do they really have the interests of the American people in mind? I don’t think so either.”

The escalating battle over Huawei has left U.S. suppliers caught in the middle and raised questions for some industries about what some already see as the inevitable long-term damage to their position in the lucrative Chinese market.

John Neuffer, president of the Semiconductor Industry Association, said chip makers like many U.S. industries supported U.S. efforts to bolster national security. But U.S. semiconductor companies had also faced a “significant and immediate adverse impact’’ from the blacklisting, he said.

2020 Elections

In playing the long game, China may be looking at Trump’s weak poll numbers and trying to wait him out, in the hopes that a Democrat might unseat him in the 2020 election. Trump and those close to him see that as a miscalculation, portraying his tough stand on China as a political asset.

That confidence might be overstated around the Monongahela River town where Trump laid out his trade strategy during the 2016 campaign. Even after tariffs on steel imports from China and other countries, the industrial rebirth there hasn’t happened as he promised.

“We really haven’t seen much of a change in the revitalization that he spoke of with the mills,” said Leanna Spada, director of the Mon Valley Regional Chamber of Commerce in Charleroi, Pennsylvania. “There are some people who think it’s going to happen, but some still don’t see it -- it’s just not feasible.”

Trump’s ‘Easy’ Trade War Hits Snags as China Plays the Long Game
 

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Comments (9)
Matthew NT
MatthewBT May 25, 2019 10:57PM ET
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In any negotiation, it is natural for each side to want the best deal for their own country. Trump's fantasy of having a deal that will only makes him looks good while the other side looks bad is obviously not going to work with another superpower. It has to be win-win for both sides. It is now apparent Trump's tactics are ill-conceived. The tariffs ends up being paid by American public though Trump lied saying it is paid by China. Trump really doesn't care much about US compared to his personal agenda of getting that "flashy" deal for him to sell for his re-election. If America has suffer for Trump's personal gain, so be it.
LI SH
LI SH May 25, 2019 12:53PM ET
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The sooner US companies realize that China isn't a gold mine for them long term, the better. All of these companies want to get into China and are so greedy about it that they can't contemplate that in order to do business in China you have to form a partnership with a Chinese company. When you do that, the Chinese government essentially gets to pick which company you will partner with, and that company is almost always owned by the Chinese government. Have trade secrets, the Chinese government now has it. Have designs for a product. The Chinese government now has it. The Chinese government has proven, time and time again that they will take that information and pass it to another company and let that company make counterfit products, or let the original venture flounder so bad that the foreign company leaves, then the Chinese company picks up the business and just runs with the foreign name and keeps on making money. Doing business in China is like trying to kiss a rattle snake.
bomz bomzov
bomz bomzov May 25, 2019 12:53PM ET
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in new economics reality US companies will move from china. even they stay in fake news fairy tale
Kenneth Gold
Kenneth Gold May 25, 2019 12:53PM ET
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LI SHI, agree, you nailed it right on the head...greedy western companies who want everything their way without consequences.
David David
David9 May 25, 2019 12:17PM ET
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Trump doesn't understand the Yin and Yang of negotiate. Chinese like balance and harmony. If Trump goes hard, China goes soft and wait him out. If Trump soften and treats China with respect, then China will losen the soft and go hard and meet him half way. That is the art of deal making.
bomz bomzov
bomz bomzov May 25, 2019 12:17PM ET
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china doesn't understand that USA not negotiate with it
LI SH
LI SH May 25, 2019 12:17PM ET
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US has been too generous and soft to China for 20+ years while China deployed all kinds of predatory strategy against US, so no more cheating!
bomz bomzov
bomz bomzov May 25, 2019 12:17PM ET
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LI SH  political corruption decompose establishment. in the 21st century, the establishment can no longer play a positive role.
Changyi He
Changyi He May 25, 2019 12:12PM ET
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Trump is China’s best friend. He is bankrupting US like he did for his companies
Carlos Ovalles
Carlos Ovalles May 25, 2019 12:12PM ET
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not completely to the bank broken but if to a point (I see it as a sacrifice) where having the price of the dollar under being able to increase exports (this creates growth in the manufacturing area, industrial and jobs) making the US attractive to others countries import products directly from here as well as the already existing large companies increase their production in th. eir own territory
bomz bomzov
bomz bomzov May 25, 2019 11:47AM ET
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China spent 20 years building its economy dishonestly. they can't refuse it
LI SH
LI SH May 25, 2019 11:47AM ET
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Can’t agree more, US has been playing too nice and generous for too long
Robert Sharp
Robert Sharp May 25, 2019 11:17AM ET
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Make no mistake, the only real friend of China is China, by design. If they are absolutely unwilling to play fair, India has a shortage of jobs... Lets build some new factories (and assist with roads, infrastructure, etc.) and tell China to pound sand. While it wouldn't be easy, nor quick, it's probably worth looking at as an option. Why keep working with a partner that stabs you in the back every chance they get? https://www.livemint.com/industry/manufacturing/200-us-companies-seeking-to-move-manufacturing-base-from-china-to-india-report/amp-1556356117055.html
Mike Roland
Mike Roland May 25, 2019 11:17AM ET
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but lighthouser and Mnuchin waited for the Indian election to end last week so as also to hoodwink India as they want to *****their oil subsidy ( because they are forced not to buy Iranian oil, so the US proposed the subsity to make them comply) and they also want to force India into trade pact..Just like Trump bemoaned the NAFTA pact only to have a slightly more updated trade deal with Canada and Mexico... hence he made enemies and negotiated for more than a year and in the end the only real change was the name from NAFTA to MXCAUS. .. trump is isolating the USA and making it more hated which will affect the financial bottom line. and so far since his election the trade deficit is ballooning even more so than before and the manufacturing industry is still contracting, there are no new coal mines and power plants are going greener, not using me coal . and by 2025 the US will be strangled by the tax cuts given to himself and the other real rich. great strategy
Zoltan McVeigh
Zoltan McVeigh May 25, 2019 11:17AM ET
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China 2025. What is that about? Advancing your political agenda? They couldn't give a & $#@ about anyone but themselves. And they have that right, just as America has a right to protect themselves. Live somewhere else and see the life you are able to achieve. You are living in a freaking dream. I'm living outside the states currently... "we aren't in Kansas anymore Toto".
David David
David9 May 25, 2019 11:17AM ET
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China is the bread and butter of this world. The world cannot exist without China. Only China can produce products at high quantity, high quality, and a low price. Without China, the rest of the world becomes a third world. Only China can make the world as prosperous as it is today. Don't listen too much on the fake news out there...China is great!!!
Jack Zhang
Jack_A May 25, 2019 11:09AM ET
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so "easy". I am unable to trust you, ANY MORE!!!
Matthew NT
MatthewBT May 25, 2019 10:24AM ET
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China has indeed dug in for the long game, willing to take short term setback. Trump rash tactics are blowing up on American public's face. Get ready to bleed paying much more courtesy of Trump's "brilliant" tariff.
David David
David9 May 25, 2019 10:24AM ET
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Trump is done...the farmers ain't voting for him this time. They got fool once, they got fool twice, there ain't going to be a third time.
Sean Livingstone
Sean Livingstone May 25, 2019 10:17AM ET
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TPP was that long game. Oh well...
 
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