US-China trade war is only on hold


IT is premature to believe a Sino-American trade war has been averted. Saturday’s agreement between Beijing and Washington merely was they would talk about the yawning $337 billion trade deficit in China’s favor. The Chinese government has not signed up specifically to cutting the trade imbalance to $200 billion as the US administration had been insisting.

Nevertheless, it is clear that President Donald Trump has got Beijing’s attention. The detailed negotiations due to start in coming weeks, probably on a sector by sector basis, will explore where the balance can be restored. It is not that Washington wants to stop the Chinese selling so much to the US but that it wants far greater access for American business to Chinese markets.

Trump appeared to shoot himself in the foot last week when, inevitably on Twitter, he announced he was concerned for the employees of the Chinese telecoms giant ZTE which has signaled that without a supply of US computer chips and other components it might have to curtail its production, if not actually shut down completely. ZTE is a special case, not necessarily directly linked to the huge trade advantage that Beijing enjoys. It has been found to have violated US sanctions of supplying equipment to both Iran and North Korea. Worse having agreed to make a $1.2 billion settlement to atone for this sanctions-busting, it then went on to break its terms.

US intelligence analysts have also long been leery of the likelihood that ZTE has been supplying equipment, particularly routers and switching gear which has been set up so that it can be easily monitored by Chinese spies. A similar suspicion exists around other Chinese telecoms suppliers of computers, handsets and wireless routers.

It is reported that Trump aides were mystified when their chief seemed to be back-pedaling over ZTE. Yet it is possible the president was playing a clever hand. By softening his tone over ZTE he may well have persuaded Beijing to start talking seriously about the trade deficit. Without such a move, they could have remained obdurate.

Now it is up to negotiators on both side to see if the suspension of Trump’s swingeing sanctions really is the “win-win choice” as by Chinese vice-premier Liu He after his visit last week to Washington. US commerce secretary Wilbur Ross is due to be spearheading Trump’s demands when he arrives soon in Beijing. But there is concern among US business that the spear may be pointed at the wrong target. Getting China to buy $200 billion more a year from the US, allowing US exporters the same level of access to China as their counterparts do in the US, is only part of the story. Though some of China’s most successful companies overseas are nominally private, all are subject to the diktats of the Communist leadership in Beijing.

Unlike Japan Inc, whose Keiretsu structures used a successful interlocking of private banks and private companies to dominate exports, the astonishing overseas success of Chinese firms has been largely at the direction and with the finance of the Chinese state. Unlikely though such a radical change may be, US business wants to see the complete removal of the hidden and not so hidden subsidies that have underpinned for instance Chinese steel and power production.