Why hoping for Donald Trump's election defeat could backfire for China

Amid stalled trade talks with the Trump administration, a strategy of waiting out next year's US presidential election in the hope for a Democratic victory might be tempting for China. But Beijing better think twice.

After negotiations with the US to end the trade dispute collapsed with no new talks scheduled and the Trump administration effectively blacklisted Chinese telecom giant Huawei, China's President Xi Jinping on Tuesday called for a new "Long March."

Xi's use of the phrase, associated with a historic march of Chinese communists in their campaign against nationalist forces, indicates that the president is "preparing his people for further economic problems," said Abraham Denmark, a former US deputy assistant of defense for East Asia, now director of the Wilson Center's Asia program.

It is also a sign that the ongoing trade dispute with the US may have hurt the Chinese economy more than officials in Beijing previously thought. "They have known that an economic slowdown was going to come anyway as part of their restructuring, but the trade war has certainly intensified and accelerated that process and [is] inflicting more economic pain than they were prepared for," he told DW.

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Business | 16.05.2019

Huawei plays down presidential decree hindering US access

The Chinese president's remarks amid a protracted trade conflict could be interpreted as Beijing viewing a short-term resolution of the impasse as unrealistic. Chinese leadership may believe it better to wait out next year's US presidential election in the hope that Trump might be defeated and that a Democratic successor might be easier to deal with, said the Asia expert.

Shutting down access to the US            

But a "wait-and-see approach" would be very risky for several reasons, said Andrew Small, an expert on US-China relations at the German Marshall Fund. "It is quite a long time to have to wait this out and there is a lot as we have seen that can play out in the meantime with both immediate and long-term ramifications for the Chinese economy."

Read more: How much damage are Trump’s tariffs doing to the Chinese economy?

Washington's de facto lockout of telecom firms Huawei and ZTE shows that the US has considerable leverage to severely impair China's economy without Beijing being able to take reciprocal action, said Small. "We have seen two companies, Huawei and ZTE, their position severely undermined virtually with a stroke of a pen by the US side. And the issue writ large is that the US is starting to shut down access to the entire US ecosystem on technology."

Blocking Chinese tech companies' access to the US market and US components they need would be problematic in itself, but the move would be compounded by possibly devastating global ripple effects as many international companies would question doing business with the blacklisted firms.       

But shutting down China's access to the US technology ecosystem could just be the beginning should Washington decide to up the ante vis-a-vis Beijing, said Small. "At the moment this is playing out in the technology sector, but in principle this can play out in other sectors too that China is prioritizing."

The US has blacklisted Chinese Telecom firms Huawei and ZTE

Republicans and Democrats on the same page

While China might be able to absorb a lot of economic hardship and eventually cope with what could amount to a decoupling of the American and the Chinese economy, the near and midterm impact on the country's economic development are negative enough that they could compel Beijing to seek a way out of the impasse sooner rather than later.         

Another reason why putting trade talks with Washington on the backburner until after the US presidential election could backfire is that a Democratic victory is not only not certain, but the fact that a Democratic-led administration might make matters even more difficult for China than the current one.

Democrats might disagree with the style and tactics of the Republican president's handling of the trade dispute with China, but they share the underlying sentiment that the US needs to recalibrate its relationship with the country.

"I think if China decides to wait it out, that's a gamble," said Denmark. "I think what you are going to see is that the idea that the United States is embroiled in a future competition with China is fairly universally held by policymakers in both the Republican Party and the Democratic Party."

A Democrat in the White House might make things more difficult for China

United front from advanced democracies

While a Democratic-led administration might be less inclined to continue certain aspects of President Trump's trade policy towards China, for example his reliance on tariffs as a preferred tool to punish other countries including US allies in Europe and Asia, they would likely try to do something that would only increase the pressure on China: forge an international coalition. 

Read more: EU leaders: We won't follow Trump's Huawei ban     

The only area where the Democrats have drawn a clear distinction with Trump is their view that "if China is your main target you should be doing this in common with the other major economies that share precisely the same concerns about China and you have more leverage if you are able to do this collectively," said Small. "But that doesn't make things easier for China either if there is effectively a united front from the advanced industrial democracies on this."

All of this leaves Beijing in an uncomfortable position, said the Wilson Center's Denmark: 

"Do you negotiate with Trump, who is predictably unpredictable, or do you roll the dice and see what happens in the next election and China may actually find itself in a more challenging negotiating position than they were with the Trump administration?"

Trump's tariffs and who they target

Solar panels and washing machines

The first round of tariffs in 2018 were on all imported washing machines and solar panels — not just those from China. A study by economists from the Federal Reserve Bank of New York, Columbia University, and Princeton University found that the burden of Trump's tariffs — including taxes on steel, aluminum, solar panels falls entirely on US consumers and businesses who buy imported products.

Trump's tariffs and who they target

China hike

On Friday May 10, 2019 President Donald Trump imposed sanctions on $200 billion (€178 billion) worth of Chinese goods. The move rasied tariffs from 10% to 25% on a range of consumer products, including cell phone, computers and toys. China's Commerce Ministry said it "deeply regrets" the US decision.

Trump's tariffs and who they target

Issues with the EU

In April 2019, the United States said it wanted to put tariffs on $11.2 billion worth of goods from the EU. The list includes helicopters and aircraft from Airbus as well as European exports like: famous cheeses like Stilton, Roquefort and Gouda, wines and oysters, ceramics, knives and pajamas.

Trump's tariffs and who they target

EU fights back

The EU imposed import duties of 25% on a $2.8 billion range of imports from the United States in retaliation for US tariffs on European steel and aluminum. Targeted US products include Harley-Davidson motorcycles, bourbon, peanuts, blue jeans, steel and aluminum.

Trump's tariffs and who they target

European automakers next?

May 17, 2019 is the deadline for President Trump to decide on imposing tariffs on vehicle imports from the EU. According to diplomats, Germany, whose exports of cars and parts to the United States are more than half the EU total, wants to press ahead with talks to ward off tariffs on automakers Volkswagen, Mercedes and BMW.

Trump's tariffs and who they target

India not exempt

India, the world's biggest buyer of US almonds, on June 21, 2018 raised import duties on the nuts by 20% and increased tariffs on a range of other farm products and US iron and steel, in retaliation for US tariffs on Indian steel. Trump said last month that he would end preferential trade treatment for India, which would result in US tariffs on up to $5.6 billion of imports from India.

Trump's tariffs and who they target

North American neighbors in tariff spat

Mexico on June 5, 2018 imposed tariffs of up to 25% on American steel, pork, cheese, apples, potatoes and bourbon, in retaliation for US tariffs on Mexican metals. While to the north, Canada on July 1 imposed tariffs on $12.6 billion worth of U.S. goods, including steel, aluminum, coffee, ketchup and bourbon whiskey in retaliation for US tariffs on Canadian steel and aluminum.