As the two countries continue their tit-for-tat strategy, they may go beyond the point of no return as Trump contends with his 2020 presidential campaign, while Xi Jinping maintains his unwavering public image.

While China holds a significant trade surplus compared to the United States, its leaders have kept mostly silent about the escalating trade war between the two countries. 

The tides are turning, and China is suddenly taking a public stand rooted in strident nationalism.

“If you want to talk, our door is wide open,” said a popular anchor in a viral clip from China’s most-watched news show. 

“If you want to fight, we’ll fight you to the end,” he said.

The sudden aggressive tone comes on the back of an intensifying trade war, and a flurry of accusations. 

Source: Statista/ Katharina Buchholz
Source: Statista/ Katharina Buchholz (Katharina Buchholz / Statista)

Only last week, US diplomats accused China of turning their back on a draft agreement to end the trade war that was nearly completed. 

China in turn hit back, accusing the US of making unreasonable demands. The political fall-out forced President Trump’s hand on May 10 into raising tariffs on $200 billion of Chinese imports, ratcheting up tariffs from 10 percent to 25 percent.

Shortly afterwards, Trump tweeted:

Less than an hour later, China increased tariffs on nearly $60 billion in US exports. 

The US trade representative quickly hit back by launching the process to apply tariffs an all Chinese imports. 

If carried through to the end, this could result in nearly a 25 percent tariff on $560 billion in Chinese exports to the US annually. 

On the flip side, the US could face tariffs on $180 billion in yearly exports to China, alongside other applied tariffs from as far back as July 2018.

Source: TRT World
Source: TRT World (TRTWorld)

But what does it all risk?

Many economists believe that China’s economic growth for 2019 could fall by about half a percentage point to 6 percent, a significant downgrade for the country of 1.38 billion that has seen nearly uninterrupted growth for almost a decade.

In the US, higher prices are immediately set to hit harder, particularly among lower income families and farmers.   

Short-term gain, long-term pain

While Trump continues to pressure China through intensifying  tarrifs, the jury is still out on whether they seem to be working. 

China's economy grew by 6.4 percent from the previous year in the first three months of 2019 alone, at nearly double the rate of US economic growth. 

One thing is for sure, "the recent trade tensions have caused real damage to the manufacturing sector, exports, production and, most worrying, investment," analysts Wei Yao and Michelle Lam of Societe Generale reported in research on China's most recent economic movements.

But there are signs to the contrary.

  • Economists from UBS Group AG believe that China's GDP could fall below 6 percent later this year, in spite of its initial strong performance.
  • Since mid-April, China's key stock market index in Shanghai has fallen by more than 10 percent.
  • Chinese manufacturing growth fell to 5.4 percent in April from 8.5 percent in March.
  • Sales in the automobile industry in China have fallen by nearly 15 percent compared to a year ago, according to a report by Gavekal Economics.
  • Meanwhile, exports to the United States, which make up nearly 20 percent of China's foreign trade, have fallen by $26 billion in value over the last six months, according a study by High Frequency Economics.

Meanwhile, the Trump administration is pushing for added pressure, by proposing 25 percent tariffs on an additional $325 billion in Chinese products as early as June 2019. 

The point of no return

Mark Jefferson, an economist at Stratton Consulting Group speaking to TRT World, argues that the US is taking the wrong approach with China. 

"Taking a strong position is necessary with a country of China's clout, but US rhetoric runs the risk of putting Chinese leadership between a rock and a hard place," he says.

"The Chinese will respond to a deal where they are publicly treated as equals, rather than embarrassed or attacked. Otherwise, how can they justify backing down to their people as anything other than weakness?"

Jefferson adds, "This trade war is only beginning, and I expect it to go on for some time. It's about geopolitics, not trade. It's entirely possible that China might make a showy concession and give Trump an electoral boost he needs ahead of the 2020 presidential elections, while opting for a long game where nothing really changes. Xi Jinping is president for life, unlike Trump."

But how far can the US really push China?

 The US is in debt to China for $1.13 trillion as of January 2019, making up nearly 28 percent of foreign-owned Treasury bills, notes and bonds. Should China choose to demand repayment, it would devastate the US economy and much of the world's economy with it. 

But there is still room to negotiate, even with the looming spectre of economic ruin overshadowing market turbulence.

Most of the latest tariffs have not yet gone into effect, as they only apply to goods that left China for the US after the tariffs were announced. 

With a three-week ocean voyage, their impact will be felt in June. Meanwhile, China's new tariffs are set to go into effect on June 1. 

There may still be time to salvage it all.

Source: TRT World