US delegates travelled to Shanghai last Tuesday (July 30) to resume trade talks with China since talks broke down last May. US delegates were led by US Trade Representative (USTR) Robert Lighthizer and Treasury Secretary Steven Mnuchin. This was the 12th round of high-level talks. They met the Chinese delegation led by Vice Premier Liu He but China's Trade Minister Zhong Shan played a far more prominent role in the discussion than in previous rounds. Zhong Shan's greater involvement had caused concerns among US delegates as he was seen as more hawkish than Liu indicating China's resolve to take a much tougher stand in the negotiations on a trade deal.
As the US delegation was attending a welcome dinner and informal discussions, Trump started twitting accusing China of failing to follow through its promises to buy agricultural products and of continuing to "rip off'' the US. Chinese officials disputed his claim. The People's Daily on Wednesday commented on Trump's claim saying that China has no intention to "rip off'' the US and has never done so, and China will not make concessions on the issues involving principles on trade. Days before the Shanghai meeting, Trump threatened to withdraw China's developing country status as granted by the World Trade Organisation (WTO). Apparently, in the face of increasingly tougher stand taken by the Chinese side to match his own stand, Trump needs to reassure his base which includes, among others, American farmers by claiming a credible win as the presidential election time approaches. Moreover, it is more attractive to Trump's base to see him purportedly fighting a war on their behalf rather than resolving. This will arguably bring maximum electoral gain in his bid for the second term in the presidency.
Expectations were already very low even before the talks began. Delegates on both sides maintained a very low profile during their talks. The US delegation headed back to the airport about 24 hours later on Wednesday and no joint statements were issued. The talks were rather brief and made little progress toward resolving the trade war that has engulfed both the countries now over a year and rattled the global economy. However, both countries agreed to meet again in September to continue trade talks in the US. They appear to be settling in for a very lengthy economic conflict going far beyond trade disputes and tariffs. In fact, they are at odds over many issues beyond trade.
The White House called the talks constructive, but at the same time said negotiations on "an enforceable trade deal'' would continue in Washington in early September. China always rejected the US "enforcement mechanism'' because it violates the principle of equality in any trade agreement as well as national sovereignty. A Chinese foreign ministry spokesperson made it clear which side China saw as responsible for the trade impasse and said 'Only when the US shows enough sincerity and good faith can we achieve progress in the trade talks''. The US's insistence on an enforceable trade deal clearly indicates its lack of good faith in conducting trade negotiations with China. The Global Times warned "the US has to change its bad habit of using tough talk to cheer its negotiating team, which easily undermines the mutual trust between China and the US''.
Trump opens negotiations with a threat possibly on the assumption that he might get a freebee - but then one never knows. In fact, it has been a tradition of successive US administrations to threaten its adversaries to abide by the US diktats or else. Trump is following that tradition but in a far more direct manner leaving aside any diplomatic niceties. In essence, the guiding principle of his Presidency is marked by aggressive confrontation. His grand plan for China, which is also shared by the Democrats in the US, is to render the country into a trade and financial dependency of the US like Japan or South Korea. He does not want to see as an independent competitor. The trade and financial dependency enable the US to impose economic sanctions to cripple the economy of its adversaries.
Also, Trump is relying on the belief that the US economy can withstand whatever pain China can inflict much longer than the Chinese economy can withstand the US trade and technology-related measures dished out against China. This leads the US administration to believe that they have the upper hand when negotiating trade deals with China. But the recent data suggest that the US economy is not doing as well as Trump and his advisers expected. Now many observers of the US-China trade conflict believe that the best US can hope for is for as little economic damage as possible arising from this conflict. US tariffs on Chinese goods are not enough for an estimated US$28 billion subsidies promised to be doled out to farmers.
The Shanghai meeting ended without any visible progress on key issues which include the elimination of US tariffs on US$250 billion of Chinese goods, the Huawei issue, technology transfer, Chinese import of agricultural commodities, state support for industries in China, and Washington's determined enforcement mechanism.
While the trade war in itself is a compelling issue, a number of other issues are bubbling hot underneath, such as the South China sea and China's naval advances, The Belt and Road Initiative (BRI), US military aid to Taiwan, limiting visas to Chinese students and academics, China's successful push to Europe, China's warmer relations with North Korea and Iran and more importantly, China's growing stronger relations with Russia. It is increasingly becoming obvious that the areas of cooperation between the US and China are now harder to identify. Despite the US political and security establishment's hostility towards Russia, their own mouthpiece, the New York Times has become so alarmed at the growing strong relationship between Russia and China that in its editorial on July 21 it wrote "President Trump is correct to try to establish a sounder relationship with Russia and to peel it away from China''.
The US political and security establishment has been successful in creating a public perception portraying China as a threat. But China does not seek global leadership nor does it seem allured by such a possibility; it is rather more concerned by the threats posed by US foreign policy-based hostility towards it.
Such a perception now poses a serious threat to global economy, not to speak of global security. On last Tuesday (July 30), the International Monetary Fund (IMF) further downgraded the global economic growth outlook citing factors such as the US-China trade conflict and its flow-on effects on the global supply chain, Trump's car tariffs and Brexit. The forecast for trade growth is even more pessimistic with the emerging Asian economies the hardest hit. The IMF also pointed out that countries should not resort to tariffs to remedy bilateral trade imbalances. The current interest rate cuts in the US and many other OECD (Organisation for Economic Cooperation and Development) countries and the ECB (European Central Bank) lend support to the threat of economic slowdown in advanced industrialised countries including the US.
Now Trump's surprise announcement on Thursday (August 01) to escalate trade war with China with 10 per cent tariff on remaining US$300 billion worth of Chinese goods with effect from September 01, further added to economic uncertainty as reflected in volatility in financial markets and oil prices. He told reporters that the 10 per cent tariffs were a short-term measure, it could go up to more than 25 per cent. Trump's tariffs will now cover virtually all of US imports from China.
A spokesperson from the Chinese foreign ministry responded to Trump's new tariff threat by saying that China did not want a trade war but it was not afraid to fight one. The tariffs may now force the Federal Reserve to further cut the interest rate to protect the US economy from trade shocks.
The IMF considers the US-China trade conflict has emerged as the single most important factor contributing to global economic slowdown.
Muhammad Mahmood is an independent economic and political analyst.