All-out trade war?

Access Archive

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—Lucas Niewenhuis, Associate Editor


1. A turn toward an all-out techno-trade war

This afternoon, Donald Trump ratcheted up trade tensions again by announcing, in a four-tweet thread, that despite “constructive talks” in Shanghai, the U.S. “will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country.”

Beijing was caught by surprise. Since it was the middle of the night in Beijing when the news hit, the homepages of state media were frozen in mildly optimistic mode. 

  • “The negotiations, which were stalled by the U.S. tariff increase in May, are overcoming this estrangement and getting back on track,” a Xinhua commentary featured on the homepage of the People’s Daily said. 

  • “China, U.S. to intensify trade consultations in August” was the main other trade-war-related headline featured in state media (English; Chinese). 

  • That article expressed hope “that the U.S. side will…show sincerity and goodwill.” 

Markets were also caught by surprise, as “a more than than 1% gain in U.S. stocks evaporated within minutes, U.S. crude fell more than 8% and emerging market stocks tumbled to a six-week low,” per Reuters. Because the new tariffs would hit consumer retail, the “SPDR S&P Retail ETF dropped more than 3%,” CNBC said

WHY DID TRUMP ESCALATE NOW?

We would bet that the change has to do primarily with the 2020 election. Since the trade talks last broke down, in early May, Trump has tended to combine his talking points about China with attacks against his potential Democratic opponents, particularly former vice president Joe Biden. He most recently did this on July 30, as his negotiating team was in Shanghai

Two pieces from the Atlantic and the New York Times show that the Democrats in this week’s primary debates didn’t talk much about China nearly as much as they should have, and that when they did talk about China and trade, they didn’t have a unified message to contrast with Trump:

By doubling down on being tough on China, rather than doing anything that could be perceived as concessionary toward China, Trump can at least claim to be “strong” and consistent on this issue. 

On the Chinese side, Bill Bishop in Sinocism points out that the new escalation “probably will give Xi more cover, if he even needs it, against any grumbling that he has mishandled the U.S. China relationship. It should be an easy argument to make that no one can manage Trump and so those trying to blame Xi have other, ulterior motives, and that even if China agrees to humiliating concessions there is no guarantee the U.S. side will keep its word.”

OTHER TECHNO-TRADE WAR REPORTS:

People to whom Trump is not listening

Agricultural purchases

  • China buys U.S. soybeans for first time since June / Reuters
    “The U.S. Department of Agriculture on Thursday confirmed a private Chinese company bought 68,000 tonnes of soybeans in the week ended July 25… Large purchases are not expected as China’s hog herd, the largest consumer of the soybean meal produced from raw beans, has been decimated by the deadly African swine fever.”

  • Global Times on Twitter: “China has approved Russian barley to enter the Chinese market, and this new approval shows closer collaboration in the agricultural sector between the two countries amid a bruising China-U.S. trade war.”

  • Hu Xijin 胡锡进 on Twitter: “China-U.S. trade war has spurred agricultural cooperation between China and Russia and promoted further modernization of Russian agricultural sector. Trade war has created strong competitors for American farmers. Global agricultural export pattern may undergo permanent changes.”

Canada and Huawei

  • Canada puts off decision on Huawei’s 5G role until after election / Caixin (paywall)
    “Ottawa will not make a decision on whether to ban China’s Huawei Technologies Co. Ltd. from the country’s construction of next-generation 5G wireless networks before the federal election in October, a senior government official said. Canada needs more information from the United States about the nature of the perceived security threat of Huawei, and it most likely won’t come before campaigning begins in early September…”

OTHER IMPORTANT PIECES TO READ ON U.S.-CHINA RELATIONS:

The China engagement debate

  • What America’s China debate gets right and wrong—and what it’s missing / World Politics Review
    Howard French compares the two open letters, and comments, “Beyond getting its own house in order, it is far from obvious what else Americans should do about the challenge that China presents.”

  • How America can both challenge and coexist with China / Foreign Affairs (paywall)
    Kurt M. Campbell and Jake Sullivan write, “The rapid coalescence of a new consensus has left these essential questions about U.S.-Chinese competition unanswered. What, exactly, is the United States competing for? And what might a plausible desired outcome of this competition look like? A failure to connect competitive means to clear ends will allow U.S. policy to drift toward competition for competition’s sake and then fall into a dangerous cycle of confrontation.”

Chinese students in America

2. Beijing threatens, again, that it could quash Hong Kong protests

China Media Project writes:

It was a July of frustration and conflict in Hong Kong. But the Hong Kong garrison of the People’s Liberation Army sought to finish out the month yesterday on a militaristic high note, releasing a propaganda video that moves disturbingly from in-the-streets exercises in protest containment — with snipers in position and loudspeaker cries, in Cantonese, of “All consequences are your responsibility!” — to full-on missile strikes at sea.

The video, which has now been posted to YouTube, is being shared through a number of WeChat public accounts in China today, including the account of the website of China Daily, the English-language newspaper published by the State Council Information Office.

The propaganda video debuted at a reception in Hong Kong for the 92nd anniversary of the establishment of the People’s Liberation Army, where the local garrison commander Chén Dàoxiáng 陈道祥 made his first public comment on the protests in the city. Per Hong Kong Free Press:

Recently, Hong Kong saw a series of violent radical incidents, which seriously disrupted Hong Kong’s prosperity and stability, seriously challenged Hong Kong’s rule of law and social order, seriously threatened the life and property of Hong Kong citizens, and seriously violated the bottom line of One Country, Two Systems. This cannot be tolerated and we express strong condemnation.

These messages followed comments by the Ministry of National Defense in Beijing a week ago that also made clear that military force is an option in Hong Kong because the “behavior of some radical protesters challenges the central government’s authority” and “absolutely cannot be tolerated.”

Meanwhile, Beijing’s top diplomat, Yáng Jiéchí 杨洁篪, furthered the government’s narrative that the U.S. has been “fanning the fires” of “violent radicals” in Hong Kong, and former Hong Kong leader Tung Chee-hwa (Dǒng Jiànhuá 董建華) claimed, “We have reasons to believe there were masterminds behind the storm.” 

Other reports on the ongoing protests on the streets of Hong Kong, particularly those streets near courthouses where the government is now prosecuting dozens of people on riot charges:

3. Beijing makes clear it is trying to punish Taiwan’s DPP

When Beijing unexpectedly announced yesterday that it would stop issuing individual travel permits to Taiwan, the one-sentence statement from the Ministry of Culture and Tourism only cited “the current cross-strait relationship” (当前两岸关系 dāngqián liǎngàn guānxì) as the reason for the change. 

Today, per Reuters:

China’s Taiwan Affairs Office said on Thursday that Taiwan’s ruling Democratic Progressive Party’s (DPP) promotion for independence has seriously dampened conditions for mainland citizens’ travel to the island.

Taiwan’s DPP has constantly provoked hostility towards mainland China and incited cross-strait opposition, spokesman for the Taiwan Affairs Office was quoted by Chinese state television as saying.

State media outlets also piled on, with the Global Times saying, “DPP’s extreme policies hurting island,” and a China Daily editorial dutifully repeating the Party line: “Tsai’s provocations come at a cost.”

Taiwan’s president, Tsai Ing-wen (蔡英文 Cài Yīngwén), had this response, according to Focus Taiwan:

“Tourism shouldn’t be politicized,” Tsai said at a press briefing. “Politicized tourism is not sustainable tourism either.”… 

In Tsai’s comments on Thursday, she said it has long been a strategy by China to clamp down on tourism to Taiwan ahead of the latter’s major elections, like the January 2020 presidential vote.

The latest travel ban, however, was “a major strategic mistake,” Tsai said.

Some observers were skeptical that the travel ban by itself would mean much. Taipei City–based journalist Emily Cardinali said, “When China punished Taiwan by restricting visas in the past, Taiwan tourism numbers continued to increase as they have this last decade. Tourism dollars from China often stay in Chinese tour companies. Tourism numbers will be fine.”

But a Global Times opinion piece threatened that there was more to come:

Considering the recent military exercises of the People’s Liberation Army, Beijing is not just thinking about playing simple economic cards to crack down on Taiwan secessionist forces… Beijing has a complete set of strategies regarding the Taiwan question, and the ban on individual travel is just a small part of the story.

4. Liu Zhongtian indicted for avoiding aluminum tariffs

The Wall Street Journal reports (paywall) on a massive international money laundering and fraud case just unsealed by the U.S. Justice Department:

A powerful Chinese billionaire has been indicted by a federal grand jury on charges that he evaded nearly $2 billion in tariffs as part of a conspiracy to smuggle massive quantities of aluminum into the U.S.

The indictment, which was reached in May but not unsealed until this week, accuses Liú Zhōngtián 劉忠田, founder of Chinese aluminum giant China Zhongwang Holdings Inc., of conspiring to defraud the U.S. through a sprawling scheme spanning the company’s headquarters in Liaoning, China, ports in Los Angeles and a remote desert in Mexico. It alleges that the scheme began in 2008 and has continued to the present day… 

The punitive U.S. tariffs on certain aluminum imports from several Chinese companies, including China Zhongwang, were imposed in 2011 after a Commerce Department investigation concluded that the companies were selling the metal at artificially low prices in the U.S. while receiving subsidies back home.

Liu is believed to be in China, which does not have an extradition treaty with the U.S., so his fate could become a negotiating point in future trade talks. 

—Lucas Niewenhuis


BUSINESS AND TECHNOLOGY:

For anyone checking the health of China’s economy, corporate earnings are providing the latest bad news. 

Of the more than 1,600 firms to give first-half guidance, 40% have predicted a drop in earnings from a year earlier, according to data compiled by Bloomberg. That’s the most since 2016 in terms of companies reporting smaller profits, deeper losses or swings into loss.

China has been successful in producing AI talent, evidenced by the rapid growth of AI human capital over the last decade. But talent acquisition is only one part of the puzzle—equally important is retaining that talent so they contribute to China’s AI aspirations over the long term. On the retention front, however, China has not done nearly as well.

BP said on Thursday it would build a network of electric-vehicle charging hubs in China with China’s Didi Chuxing as the British firm bets on the world’s largest market for such cars to help profits during the transition from oil to cleaner fuels. 

SCIENCE, HEALTH, AND THE ENVIRONMENT: 

POLITICS AND CURRENT AFFAIRS:

The US Department of Defense (DoD) purchased and used millions of dollars worth of electronics last year containing “known cybersecurity vulnerabilities” that make them particularly susceptible to Chinese government espionage. The findings are included in a recent audit by the Pentagon’s Inspector General (IG) for DoD cyberspace operations, which warns that “missions critical to national security could be compromised” if the military does not take swift action.

  • Russia-China military cooperation
    Twitter thread by Alexander Gabuev: Joint patrol of Chinese and Russian strategic bombers last week is a milestone in deepening military cooperation between Moscow and Beijing. It’s more consequential than many people think…”

  • Pompeo in Bangkok
    Pompeo criticizes China after meeting top diplomat in Bangkok / Reuters
    “In Bangkok, Pompeo said he had urged regional allies to speak out against Chinese coercion in the South China Sea and earlier said Chinese dam-building upstream on the Mekong River had caused decade-low water levels in the river’s lower basin in Southeast Asia.”

  • Is CPEC dead?
    CPEC is dead. Somebody tell Beijing. / Medium
    Farooq Tirmizi wrote in this May 29 piece that there was an “emerging consensus” within Pakistani elites that “the more Pakistanis learn about the true costs of the China Pakistan Economic Corridor (CPEC), the less inclined they are to want to participate any further than we already have.”
    Zhào Lìjiān 赵立坚, the deputy chief of mission of the Chinese embassy in Islamabad and a prolific Twitterer, caught wind of this article and dubbed it “joke of the day.” 

  • Xinjiang propaganda
    Foreign scholars impressed by stability, prosperity in Xinjiang / Xinhua

David Bromwich, president of the New Zealand China Friendship Society, said that it was necessary to take some measures such as what Xinjiang is doing right now to ensure the safety of the people.

“I’m going to tell more New Zealanders about what I saw from the visit, a real Xinjiang that they need to know,” he said.

“It’s absolutely not true,” said Guly Mahsut, 37, a Uyghur based in Canada. “One of my cousins and one of my tour guide friends, and my friend’s husband, they are still in the camps,” she told AFP.

Mahsut and other overseas Uighurs have responded to China’s claim with the hashtag #Provethe90%, featuring stories and photos of missing friends and family they have been unable to contact in Xinjiang.

SOCIETY AND CULTURE:

Beyond a few funny stories about the rationing system and modest living standards, I knew very little about that time in China. I imagined life was as simple and plain as the variety of goods available in the stores, not nearly as colorful and exciting as the 1990s and 2000s when economic growth jetted to new heights. 

So I was surprised to learn during a recent conversation with my parents that it was the most hopeful and open time they ever knew in their lives. For all its lack of material pleasures, the ’80s had no shortage of vibrant culture…

But perhaps most remarkably, speech was not strictly policed in the early 1980s, leading to an explosion of expression that served as catharsis for years of repression.

In this environment, people felt free to give their own points of view without fear of reprisal. My father recalls testing the waters by saying, “The Communist Party is not sacred,” in front of a party secretary at his university. He was not even reprimanded, much less punished.


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