“THERE are no winners in a trade war, and going against the world will only lead to self-
isolation.” – China President Xi Jinping

Until Friday, April 11, the big question for market analysts and media commentators amid the tariff war that US President Donald Trump unleashed on the world was: Who will blink first, Trump or Xi?

This uncertainty stemmed from Trump’s call for a 90-day pause on reciprocal tariffs affecting over 180 countries, announced on April 2, while notably excluding China from the
pause period.

He also escalated the tariff attack by raising the rate on Chinese imported goods to 145% on April 9. In an immediate response, China increased its tariff rate on US imports to 125%.

In the war of words between the two countries, Trump and his officials have repeatedly emphasised that they expect China to follow other countries by bending its knee to the US demands and having to accede to a negotiated tariff deal.

Such a deal would ensure that the US has the upper hand and allow Trump to proclaim victory in correcting the tariff “injustices”, which he claims the US has been a victim of during earlier administrations.

How Trump views his tariff war

In speech after speech, Trump has repeatedly used not very diplomatic but effective line of defence to his American audience to justify his launch of the global tariff war that has upended share and financial markets around the world and spooked ordinary Americans by its inevitable impact on their cost of living and businesses.

“I’m telling you, these countries are calling us up, kissing my ***. They are dying to make a deal.”

Mocking the pleas of foreign leaders, he parodied: “Please, please, sir, make a deal. I’ll do anything.”

On China’s response, Trump has also been insistent on his expectations.

“China wants to make a deal. They just don’t know how quite to go about it. They’re proud people.” Trump said during an event at the White House.

Signalling Xi on a deal that would allow the US to claim victory in the tariff war while offering some concessions to China, Trump told reporters in the Oval Office: “Xi is a smart guy and we’ll end up making a very good deal. Xi is a man who knows exactly what has to be done; he loves his country. We will get a phone call at some point and then it’s off to the races.”

China’s response to Trump’s overtures

Not only has the phone call not come through but Trump’s public assertions of admiration for Xi have also failed to have any effect with China making it clear that it is prepared to “fight to the end” in the tariff war.

According to China’s Finance Ministry: “The US side’s imposition of excessively high tariffs on China seriously violates international economic and trade rules, runs counter to basic economic principles and common sense, and is simply an act of unilateral bullying and coercion.”

For now, China has responded with a combination of opposition, diplomatic efforts and retaliatory measures.

Here is a breakdown of the Chinese retaliation to date:

Retaliatory tariffs: Chinese officials have described the US tariff actions as a “numbers game” that has no real economic meaning, and that it is becoming a “joke”.

At the same time, China has retaliated with tariffs especially targeting American rural communities in the midwest and south that are key electoral support groups for Trump and his Republican party.

Significant US sectors also affected by Chinese tariffs include the aeronautical and manufacturing industry and Trump’s “drill, baby drill”-favoured oil, gas and coal industries.

The latest China-move to suspend exports of rare earth minerals and magnets crucial for the world’s semiconductor, high tech, aerospace and military industries has the potential to be a game changer in the tariff war.

Emphasis on multilateralism: China has emphasised its commitment to open and free markets and multilateralism, and as a defender of the global trading system.

Together with complaints lodged with the World Trade Organisation challenging the legality of the US tariffs, it has worked to build alliances and strengthen trade relationships with other key global trading blocs, including the European Union and Asean.

Xi’s trip to Vietnam, Cambodia and Malaysia can be expected to strengthen Asean’s resistance to the US’s unilateral bullying and coercion of smaller countries.

Economic and strategic shift: Chinese media and officials have emphasised self-reliance, with the government accelerating domestic production and consumption of critical goods, reduced dependency on the American market and diversification to the global south and BRICS countries.

Conclusion

The US can be seen to have blinked first in this war between the two global trading giants. This is because while the US remains a key trading partner for China as a major export destination, China is an even more important trading partner for the US in supplying a wide range of everyday products that provide the average American family with a comfortable and affordable lifestyle.

The latest development in this battle over tariffs has Trump suspending the tariff imposition on mainly China-imported products covering 20 product categories, including computers, laptops, disc drives and automatic data processing.

It also includes semiconductor devices, equipment, memory chips and flat panel displays. All are everyday products important to American consumers, who lack access to equivalent affordable products from anywhere in the world, including from the US and US businesses – small and large – dependent on their China investments and factories for their profits and bottom line.

The reality which Trump and his team as well as Western economists and mainstream media commentators ignore or prefer not to discuss is that should the tariff war boil down to which country can withstand the pain more, it will be China.

Further delay by the US in arriving at a negotiated settlement with China can only ensure its counter-intuitive impact on American interests by stiffening the resistance of other countries to what is regarded by all US allies as violations of international trade rules and basic economic principles; and the reckless whipping up of global economic turbulence and disorder, in which there can be no winners.

Lim Teck Ghee’s Another Take is aimed at demystifying social orthodoxy.

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