China's Xi has a key advantage over Trump in any trade war

Editor
Yahoo Finance
U.S. President Donald Trump takes part in a welcoming ceremony with China’s President Xi Jinping at the Great Hall of the People in Beijing, China, November 9, 2017. REUTERS/Damir Sagolj
U.S. President Donald Trump takes part in a welcoming ceremony with China’s President Xi Jinping at the Great Hall of the People in Beijing, China, November 9, 2017. REUTERS/Damir Sagolj

If the world’s two largest economies are heading toward a trade war, time is on China’s side.

“Don’t forget: The Chinese have a very long-term view,” Bloomberg News Chief Content Officer Marty Schenker argued on Wednesday, while noting that Chinese President Xi Jinping no longer has term limits. “He’s going to be there long after Donald Trump is gone. So they’re in this for the long haul, and they’re playing hardball.”

On Tuesday evening, the Trump administration announced 25% tariffs on more than 1,000 industrial technology, transport, and medical products amounting to about $50 billion in 2018 imports. China swiftly countered with proportional tariffs of up to 25% on more than 100 U.S. goods. The latest move followed a previous round of reciprocal tariffs worth about $3 billion.

And while Chinese officials encouraged negotiations, Beijing doesn’t seem to be backing down.

“Even though China and the U.S. have not publicly said they are in a trade war, the sparks of such a war have already started to fly,” an editorial in China’s government-backed Global Times newspaper announced. “There are some people in the West who think that China looks tough for the sake of a domestic audience, and would easily make concessions. But they are wrong.”

Charting the value of Chinese products imposed with increased tariffs by the U.S. government. REUTERS
Charting the value of Chinese products imposed with increased tariffs by the U.S. government. REUTERS

There’s no telling how long the trade tensions will last. Trump faces pressure that don’t exist for Xi, including criticism for market turmoil and political risks in the run-up to 2018 midterm elections. At the same time, the American president is buoyed by the popular notion that a rising China has taken advantage of the current trade relationship.

“Does [Trump] care what this is doing to the markets?” Greg Valliere, Chief Global Strategist at Horizon Investments, wrote in a new note. “Yes, of course, but he has an election to win, and a base to satisfy, so the markets may have to endure the volatility for months to come.”

Trump tweeted that the trade war with China was already lost, blaming previous U.S. administrations.

He later added: “When you’re already $500 Billion DOWN, you can’t lose!”  When asked about the tweet, new top White House economic advisor Larry Kudlow said he was “not sure what exactly he’s referring to.

In any case, markets are jittery as China patiently matches the Trump administration’s moves.

“This is a game of chicken, with both sides seeing the other as the bigger chicken,” Scott Kennedy, a China scholar at the Washington-based Center for Strategic and International Studies, told Bloomberg. “They are positioned in a way that could create miscalculations on both sides and create an escalatory ladder.”

Follow Michael B. Kelley on Twitter @MichaelBKelley.

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