US-China trade war escalation: No going back anytime

Once again the favored tweet diplomacy was at work when President Donald Trump tweeted from aboard Air Force One a threat of further tariffs on another $267 billion of imports from China, behind the $200 billion list that was about to hit.

This time the markets seemed more sanguine, having become accustomed to an ever escalating tweet trade war but instead chose to focus instead on comments by National Economic Director Larry Kudlow pointing to the good relationship and dialogue between Trump and China’s President Xi Jinping, Trump’s willingness to meet with Xi at any time, and so on.

This is more hope than of any substance as the Chinese are running out of polite patience. In the meantime, these escalating trade tariffs are the real cause on why oil prices are still not going up sharply due to actual or forecasted reductions in Iranian oil exports as the 4th November USA oil sanctions deadline looms.

Despite Mr Kudlows optimism, there is and has been no dialogue whatsoever at a senior level, or of any substance to note at any level, between US and Chinese officials since the low energy meeting between Treasury Under Secretary for International Affairs David Malpass and China’s Vice Minister of Commerce Wang Shouwen on August 22-23.

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Indeed, that meeting, if anything was a tepid, final feeler by Beijing and Washington to see if there was any low hanging fruit or a political window for easy progress before the US midterm elections in November. The short answer was, and appears to remain, for now at least, no.

Indeed, in response to Trump’s latest tweets , senior Chinese leadership now believe they have no expectation the deadlocked bilateral trade talks can or will be resolved at any time in the near future soon, and what’s more, there has been no offer or expectation from either side of any high-level telephone conversation, much less a bilateral call between the heads of state, the usual favoured break through style of diplomacy favoured by the transactional US President.

The Chinese have not been waiting for that telephone call either and have been highlighting a conference being organized by Beijing to enlist China-friendly former senior US officials and business leaders to its cause.

But officials in Beijing warn ominously, that were China and the US to engage in a full-blown trade war, China’s multinationals, US companies in China, or US companies with close trade ties with China would be forced to make a strategic choice – continue development in China, or withdraw completely.

The game plan from Washington for weeks now has been to seek victories on trade elsewhere, with Mexico and even Canada, and in parallel to nudge the still nascent EU auto and industrial tariff talks along

Dr. Mohamed Ramady

Bringing production home

This type of threat does not go down well with President Trump either and lest need reminding, President Trump also suggested Apple should perhaps consider bringing some of its production back “home” to the United States. The enormity of that statement, even from a President known for rather bold, and controversial, tweets, should perhaps not be dismissed.

In public, Chinese media outlets and experts continue to exhort patience and digging in for the long game, while economic officials have been explicitly tasked by the State Council with protecting potential downside risks to the domestic economy.

The rhetoric in private meanwhile continues to express frustration, and circle around potential avenues for retaliation and leverage against the US in what they now expect will be a long, drawn out battle.

As such, officials in Beijing note they are not surprised by Trump’s latest round of trade “intimidation and coercion” (preparing tariffs on further $267 billion in Chinese goods), even while angrily repeating that China will not be afraid or back down if a full-blown trade war with the US is unavoidable.

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And as to any specific negotiation or demands, the Trump administration, they note, is well aware of Beijing’s position, and particularly of President Xi’s vow not to make any concessions on China’s core interests - such as “Made in China in 2025” and “the Belt and Road Initiative.”

Where does all this lead to? Timing wise, Beijing is now settled in to wait talks out and see if a now widely predicted Democratic Party take-over of the House of Representatives in the midterm elections will bring a more moderated, chastised Trump back to the negotiating table.

That, some analysts believe, is a calculation in which they may be gravely mistaken given the surprises seen in his election victory and continued support from the presidents core base despite a cascade of revelations from White House insiders and former disgruntled employees.

The game plan from Washington for weeks now has been to seek victories on trade elsewhere, with Mexico and even Canada, and in parallel to nudge the still nascent EU auto and industrial tariff talks along.

The China portfolio, for all practical purposes, is for now put on ice. This will have major consequences on oil prices, Iran sanctions and long term Chinese desire to unshackle itself from a US dominated financial system.

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Dr. Mohamed Ramady is an energy economist and geo political expert on the GCC and former Professor at King Fahd University of Petroleum and Minerals, Dhahran, Saudi Arabia and co-author of ‘OPEC in a Post Shale world – where to next ?’. His latest book is on ‘Saudi Aramco 2030: Post IPO challenges’.

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Last Update: Wednesday, 20 May 2020 KSA 09:53 - GMT 06:53
Disclaimer: Views expressed by writers in this section are their own and do not reflect Al Arabiya English's point-of-view.
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