Eurasia Future’s Adam Garrie interviewed China expert, editor and commentator at CCTV.com and longtime Beijing resident Tom McGregor about the latest developments in the China-US trade war.
AG: Just when China-US trade negotiations seemed to be heading for a win-win deal, Donald Trump surprised the world by announcing a new round of tariffs which was followed by a new set of Chinese counter-tariffs. How did this come about?
TM: Misunderstandings, particularly on the cultural side. The White House insists that the blame lies with Beijing as they had sent back numerous revisions on the trade agreement, which gave the impression to the US Trade Representative Robert Lightizer that China was backtracking on prior agreements.
On this point, Washington appears to have an argument, but US trade officials received the edits on Friday evening, so instead of calling Beijing for clarification, they remained quiet until Sunday evening, May 5, Washington-time, and US president Donald J. Trump delivered his unequivocal response in a Tweet by saying that the US will increase tariffs on US$200bn of Chinese imports products, starting shortly after midnight, Friday -May 10, Washington-time.
Trump said China was trying to renegotiate the deal and he ordered to increase tariffs in a retaliatory response.
AG: Were you personally surprised by Trump’s “surprise” tariff announcement?
TM: Certainly it was surprise, media reports, public message from the White House and Beijing were all hinted at an upcoming deal, before the sudden collapse of the US-China trade truce that started on December 2, last year when Trump and President Xi met face-to-face at Buenos Aires, Argentina at the G20 leader’s summit.
Sentiments were so positive in Beijing that many Chinese were beginning to await a brand new era of prosperous US-China relations as many Chinese companies expressed eagerness to make significant investments into the US markets, such as expanding supply chains and opening up factories in the US, while China’s largest companies, SOEs (state-owned enterprises) were planning for big deals in the US agriculture and energy sectors, such as making orders for soy beans, pork and LNG (liquefied natural gas).
Yet such dreams were shattered the moment, Trump had followed through with his threat to increase tariffs and China responded the Monday afterwards, May 13 with counter measures – increasing tariffs on US imports – US$60bn.
AG: What is your view of the Chinese response to the new tariffs thus far?
TM: To be expected and nobody should be surprised by it. Trump had increased tariffs after the truce and Beijing had to respond in kind as a way of saving face. In the view of Chinese political culture, saving face is about showing strength and not being viewed as weak when the other side tries to bully you. So when Trump demanded China accepted deal right now with ultimatums, China was obligated to save face by saying no and to respond with counter-measures. China could only accept a deal if it saves face so even if China must suffer a devastating defeat that would be more preferential than surrendering to bullying demands.
AG: Have the events of the last week made a resolution to the trade war impossible or just more difficult?
TM: Not impossible. It’s only impossible if both sides shut down talks, launch economic embargoes on each other, order economic sanctions, China sells off its US debt holdings and there is total decoupling of economic activities between two countries. I don’t believe that day will ever happen, but we may have moments when it seems possible that it could occur. But extreme actions such as this should only be taken if a real war, not trade wars, ensue. Let’s hope that does not happen.
AG: What has been the biggest problem regarding the overall progress of the trade talks?
TM: Lack of understanding on both sides. We need to see better communications, as well as improved listening skills. Both sides can be prone to taking hard-line stances when a softer tone would have been better. Both countries want to convey images of strength at all times, which does appeal to patriotic sentiments, but sometimes favoring diplomacy over bluster can be a better approach.
For the US side – I believe their biggest struggle is arrogance. The US trade team knows they are more powerful, richer and have good reasons to fight China on trade, but they had forgotten that sometimes the other side of the negotiations room table have a right to request concessions on some parts of the deal. For China, they have to do better at showing sincerity at following up on agreements. When Trump and Xi agreed to a trade truce on December 2nd last year, Beijing should have immediately made huge orders to purchase American imports to narrow the US-China trade deficits. They dropped the ball here and their delays had led to the recent blow up in trade talks.
AG: What is the feeling of ordinary Chinese and of ordinary Americans to these latest developments?
TM: Shock, anger and sadness
AG: What are the necessary compromises that must be made in order to reach a win-win finalisation to the talks?
TM: China should start making a list of orders for purchase of US imports and show that list to US trade officials to show the US that a win-win trade deal will benefit American farmers, ranchers, manufacturers and energy producers. When Washington sees that list it will be real hard for them to say “no,” because they will see the negative consequences of their decision. China should also accept review panels so that US side can see proof that trade agreement gets implemented. But I’m calling for review panels composed of American, Chinese and neutral third party members that both sides agree and accept to.
Another good concession would be to drop tariff rates on both sides from 25% to 10% and keep them there for six months after trade agreement gets signed so that we can ensure both sides have implemented enforcement of the agreement. After a six months period if both sides are happy, let’s go to 0% tariffs.
Additionally, demanding China impose new domestic laws would be too much. Why not regulations imposed by Chinese President Xi Jinping? Besides, if we demand laws then Trump should be required to get approval from US House Speaker Nancy Pelosi and Democrat-controlled Congress to make US-China trade agreement the law of the land. Do you really believe Pelosi will support a Trump deal? That’s never, never and never. So if US can’t make this trade agreement a law, don’t expect China to do same on their side. The best you can do is get an Executive Order from Trump and also Xi on the China side to make a US-China trade deal come true.
AG: Who stands to benefit from a prolonged trade war?
TM: The EU, most of all: Both Beijing and Washington will offer enticements to get Brussels to side with them over trade wars. EU companies will receive preferential treatments from both China and US, while the EU will not openly take sides in order to benefit from such duplicity and double-dealing on their part. But eventually the US and China will get tired of EU stalling and Brussels will get burned big time. If US-China trade deal happens, the EU will get left out in the cold and deservedly so.
AG: What is the time frame you would assign in respect of a conclusion being reached and a deal being signed?
TM: When trade wars first started and I was interviewed on Sputnik News and later when writing my first commentary for Singapore-based CNA, I predicted Trump and Xi would sign a “win-win trade deal” and amazing agreement at around December 2021. My forecast gave that timeframe because Xi would be eager to sign a trade agreement before the year Beijing hosts the Olympics in 2022, so that Trump can be guest of honor to sit with Xi at opening ceremonies of Winter Olympics. This would show that a new era of US-China ties has emerged, which will establish so much harmony, peace and prosperity between both nations and the world at large.
But when Trump and Xi agreed to trade truce last year, I was lulled into a more optimistic attitude thinking that trade deal could get singed in the next few months. I should have stuck with my original forecast apparently, but perhaps I’m wrong again, but nothing will be certain until we see Trump and Xi signing the deal and no telling when that wil happen.