Why China Is Winning the Trade War

By John CassidyMay 23, 2018

In dealing with the U.S. on trade, China’s leadership knows what it wants, has clearly delineated its own red lines, and has studied its opponent closely.Photograph by Nicolas Asfouri / AFP / Getty
An acquaintance of mine, an economist with decades of experience in Washington and on Wall Street, recently visited Beijing, where he met with a top Chinese official. Given how the trade talks between the Trump Administration and Chinese negotiators have unfolded in the past couple of weeks, the meeting turned out to be prophetic.

The Chinese official said he viewed the Trump Presidency not as an aberration but as the product of a failing political system. This jibes with other accounts. The Chinese leadership believes that the United States, and Western democracies in general, haven’t risen to the challenge of a globalized economy, which necessitates big changes in production patterns, as well as major upgrades in education and public infrastructure. In Trump and Trumpism, the Chinese see an inevitable backlash to this failure.

The Chinese official also predicted that his government would show some flexibility in trade talks. Having monitored Trump’s rise closely, the Chinese fully expected a confrontation after he was elected, and they were willing to make some concessions to meet concerns about the huge U.S.-China trade deficit. Indeed, they agree with U.S. analysts who say that the Chinese economy, having experienced three decades of rapid industrialization and massive capital investments, needs to be rebalanced toward domestic consumption.

The official emphasized, however, that the Chinese government was not willing to compromise its other core economic strategy, which involves upgrading its now vast industrial sector, moving up the economic-value chain, and creating a major Chinese presence both in foreign countries and in the industries of the future, such as robotics, biotech, and clean-energy transportation. This policy is encapsulated in the “Made in China 2025” strategy document that China’s State Council released in 2015. To many members of the Trump Administration, particularly Robert Lighthizer, the U.S. Trade representative, and Peter Navarro, a White House economic adviser, this document provides official cover for discrimination against U.S. firms in the Chinese market, the theft of U.S. intellectual property, and the misuse of industrial and antitrust policies to favor Chinese firms.

Finally, the Chinese official expressed frustration that U.S. policymakers didn’t spend as much time studying China and its history as the Chinese spent studying the United States. Many senior Chinese officials, particularly the younger ones, speak English and have spent time studying in the West. How many American officials speak Mandarin? the Chinese official asked gently. How many of them could hold a conversation about Chinese literature or film?

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