Unless someone backs down in a major way, this trade war is going to last for a very long time, and the Chinese have made it exceedingly clear that they are never going to back down on the core issues. So that means that the only way out is for President Trump to back down, and with an election looming in 2020, his advisers are telling him that now is the time to be very tough with China. Bernie Sanders and other top Democrats have staked out positions that are just as tough on China as Trump is being, and so if Trump backs down now he will be absolutely hammered by the other side for being weak. But if investors become fully convinced that a protracted trade war is in our future, that could be enough to set off a new financial crisis and throw the global economy into a tailspin. It definitely looked like we were headed for a major economic downturn anyway, and so this trade crisis could certainly be more than enough to push us over the edge.
In a very rare move, the Chinese have publicly revealed what it is going to take for a trade deal to happen.
According to Vice Premier Liu He, China has three key demands that must be met…
In a wide-ranging interview with Chinese media after talks in Washington ended Friday, Vice Premier Liu He said that in order to reach an agreement the U.S. must remove all extra tariffs, set targets for Chinese purchases of goods in line with real demand, and ensure that the text of the deal is “balanced” to ensure the “dignity” of both nations.
Liu’s three conditions underscore the work still to be done if an accord is to be reached between the world’s two largest economies. President Donald Trump’s administration told China it has a month to seal a trade deal or face tariffs on all its exports to the U.S.
That first demand is definitely “a sticking point” for the Trump administration.
In fact, the Trump administration has been adamant that the removal of current tariffs will not happen until the Chinese show that they are following through on their commitments…
By insisting that it wouldn’t remove any tariffs upon closing a deal, the U.S. gave Beijing little incentive to accept tough conditions. The U.S. position remained firm: no tariff removal until Beijing showed it would carry through on the commitments it made under the deal. On top of that, the U.S. wanted China to pledge not to retaliate if the U.S. were to reimpose tariffs if it found China in violation of some provisions.
In essence, the U.S. wants a trade agreement with very tough enforcement provisions, and the Chinese feel like such an agreement would be a slap in the face.
Responding to these developments, the main government-run newspaper in China struck a defiant tone…
“At no time will China forfeit the country’s respect, and no one should expect China to swallow bitter fruit that harms its core interests,” the People’s Daily, a newspaper controlled by the Chinese ruling Communist Party, said in a commentary on Monday.
And an editorial in the Global Times made it quite clear that China will be willing to fight a trade war if that is what is necessary…
China’s nationalist Global Times tabloid said in an editorial on Monday that the country had no reasons to fear a trade war.
“The perception that China cannot bear it is a fantasy and misjudgment,” the commentary said.
“If they weren’t being seriously provoked, the Chinese people would not favor any trade war. However, once the country is strategically coerced, nothing is unbearable for China in order to safeguard its sovereignty and dignity as well as the long-term development rights of the Chinese people.”
The Editor in Chief at the Global Times, Hu Xijin, insists that the position of the Chinese government will not change no matter how high Trump raises tariffs…
China has made public 3 core concerns that must be addressed & it won’t make concessions on. From perspective of China’s politics, there is little room for compromises. They will insist. This political logic won’t be changed no matter how much additional tariffs the US will impose.
Of course Trump is not exactly being conciliatory either. For example, check out what he just posted on his Twitter account…
China is DREAMING that Sleepy Joe Biden, or any of the others, gets elected in 2020. They LOVE ripping off America!
It’s true, but that is not the sort of thing that you say if you hope to make a deal.
And earlier, Trump insisted that we “are right where we want to be with China”…
We are right where we want to be with China. Remember, they broke the deal with us & tried to renegotiate. We will be taking in Tens of Billions of Dollars in Tariffs from China. Buyers of product can make it themselves in the USA (ideal), or buy it from non-Tariffed countries…
….We will then spend (match or better) the money that China may no longer be spending with our Great Patriot Farmers (Agriculture), which is a small percentage of total Tariffs received, and distribute the food to starving people in nations around the world! GREAT!
Without a doubt, previous administrations allowed the Chinese to walk all over us, and we must either stand up for ourselves or we are going to continue to get abused.
As one U.S. official put it, “sometimes you need to say ‘stop screwing me.’”
But now that a trade war has begun, the conflict could get quite dirty.
Most analysts seem to assume that tariffs will be the only weapon of choice, but what if China decides to cut off our access to rare earth elements? The U.S. rare earth industry is greatly underdeveloped because we assumed that we could always get all that we wanted from China.
Well, if they cut us off we will be in a world of hurt.
And that is just one example. The Chinese can literally hurt us in hundreds of different ways, and they will not hesitate to exert pressure where needed.
Doing nothing about China was not an option, because they have been robbing us blind. But a cataclysmic trade war is not a good option either.
In the end, getting a trade agreement with China that addressed our core concerns without throwing the entire global economic system into chaos would have been preferable.
But that didn’t happen, and now everyone should be bracing for disaster as we enter a very uncertain future.