Neither Donald Trump nor Xi Jinping can afford to blink.
A personal duel between two rival presidents could ensure that the escalating trade war across the Pacific may last longer than anyone expected.
The showdown is now no longer just a confrontation between China and the US – one a rising power challenging the long established dominance of the global economic leader. It’s become a test of wills between two of the world’s most powerful men, each of whom has political interests that are more likely to deepen the conflict than to quickly ease it.
Both view themselves as strongmen. Both have imposed their power on their domestic governing systems by force of will. Both have the authority to trigger global shock waves – as they did when markets plunged following Trump’s tariff hikes last week and China’s multi-billion dollar retaliation on Monday.
Both see the honor of their nation at stake at a crucial moment in the history of US-China relations, as the emerging competition between two great powers becomes sharper than ever.
While Trump has said the two sides were on the verge of a deal last week before China backed out, the gulf in intention between the two giant economies will complicate future talks.
Trump – lambasting Chinese intellectual property theft and support for state industries – believes he has to change the global trading system itself because it is a massive ripoff for the United States.
And Trump thinks the strength of the US economy gives him an edge and the ability to pin the blame for the impasse on Xi.
“We are now a much bigger economy than China, and have substantially increased in size since the great 2016 Election. We are the ‘piggy bank’ that everyone wants to raid and take advantage of. NO MORE!” Trump said Tuesday in an early morning volley of tweets about the trade faceoff.
Xi sees US demands as an infringement on Chinese sovereignty and has an incentive to keep globalization intact since China has profited handsomely from the status quo in a stunning 20-year growth explosion.
The Chinese leader is no keener to climb down than Trump.
“China feels it does not have to give in,” Max Baucus, a former US ambassador to China told CNN’s Kate Bolduan on Monday.
“Add to that, saving face is a big deal in China. President Xi Jinping does not want to appear to have backed down. I don’t think Americans understand that,” the former Montana senator said.
While Trump said Monday he will talk to Xi at the G20 summit in Japan in late June – which is now looming as a massively consequential meeting – the gaps may be too wide to bridge by then.
Trump’s ideology
One reason why the dispute could go on for a while is because Trump seems to sincerely believe he is winning.
Convinced of the primacy of the healthy US economy, willing to shrug off a day’s losses on the stock market and wielding his favorite tariff tool, Trump is not at all fazed.
“We’re in a very good position, and I think it’s only going to get better,” Trump said Monday.
Trump is often ideologically supple and could turn on a dime on the dispute. But he’s held deep seated beliefs about China’s economic threat for decades and has long advocated a protectionist remedy. This is one issue that he’s shown that he really does believe in. After all, he seems ready to gamble on the health of the US economy – his best political asset heading into his 2020 reelection race.
The President’s hawkish comments on Monday might have been an attempt to calm tumbling markets. But they also entrenched a position from which it will be hard to abandon without being embarrassed.
For now at least, before damage to the economy and consumer budgets from the deepening trade war becomes obvious, Trump may believe he will prosper politically from standing up to China.
And after accusing Beijing of “raping” US workers in his 2016 campaign, he will want to make good on his promises before 2020.
Trump is also using the China confrontation to emphasize his contrast with former Vice President Joe Biden, the apparent 2020 Democratic front-runner.
Biden complained Monday that Trump was approaching the trade spat all wrong by showing “a lot of bravado, no action.”
The President however has already charged that Biden is too weak to take on Xi – and clearly enjoys the contrast.
“China is DREAMING that Sleepy Joe Biden, or any of the others, gets elected in 2020. They LOVE ripping off America!” Trump tweeted over the weekend.
Trump’s big gamble
Trump’s foreign policy bets are often motivated by a desire to shore up his domestic standing. And CNN recently reported that Trump is desperate to deliver on his self-image as a master deal maker, another reason it will be tough for him to fold.
The big political risk for the President is that a prolonged trade war of attrition begins to erode US growth, devalues 401Ks in a market correction and tarnishes the economic feel good factor and undermines Trump’s boasts of a new era of prosperity.
Voters could tire of paying an effective sales tax on goods like iPhones, toys and foodstuffs, despite Trump’s assurance that China and not US consumers foot the bill for tariffs.
US exporters will take a hit from China’s tariffs and US manufacturing will also suffer.
Rick Helfenbein, CEO of the American Apparel and Footwear Association, said his industry was “beyond freaked.”
“(We are) sitting around feeling like we have just bought tickets for the second sailing of The Titanic, the only difference now is we know exactly where the icebergs are,” Helfenbein said on CNN.
The pain of farmers already suffering from Chinese retaliatory tariffs – especially those in the swing state Midwest – could also deliver Trump a 2020 shock.
Punishing Beijing could also have other spillover effects. If China is slowed, other economies, including US export markets in Asia and Europe, could suffer and hurt US jobs and prosperity.
“If we get the full throttle of all tariffs it does risk a recession,” Diane Swonk, chief economist of Grant Thornton, told CNN’s Brooke Baldwin on Monday.
Such a doom-laden scenario is one reason why some analysts still bet Trump will close a deal after a period of posturing.
He has, after all, frequently escalated a crisis, then stepped back – while declaring incremental changes to an existing agreement as a massive victory for the United States.
The scenario eventually eased the crisis over the renegotiation of the North America Free Trade Agreement and offers a blueprint for a deal at the G20 should Trump’s political calculation over the China trade war change.
Xi’s choice
The confrontation has already revealed a truth that reflects an important geopolitical evolution: Beijing is not afraid of the United States.
Trump spent the weekend warning China on Twitter that it would be “hurt very badly” if it didn’t do a deal.
By Monday morning, he had his answer when Beijing announced plans to raise tariffs on $60 billion in US goods.
Like Trump, Xi is not immune to political pressures.
Although he is the most dominant Chinese leader in decades, he cannot completely ignore complicated internal Communist Party dynamics. Chinese leaders are always wary of any changes to social conditions – that could be brought on by a slowing economy – that could cause public resentment and translate into political activity.
China is also sensitive to its own experience under colonialism and proud of its rise as a key regional power and global player. So there is no circumstance under which Xi could allow himself to be seen as bowing to bullying from any Western leader, let alone an American president as combative as Trump.
The importance of Chinese pride in the dispute was reflected in an article in the People’s Daily, the Communist Party mouthpiece on Monday. The paper accused the US of misjudging China’s “strength, capability and willpower” and of taking a “risky and impetuous decision.”
Baucus said that Americans underestimated China’s size, power and leverage. He also said that Beijing was playing a far longer game than Washington and, with the leadership’s iron grip on dissent, could afford to absorb the painful side effects of a trade war.
“I think those who think the US (has) leverage do not really fully understand China. China thinks long term. China is an authoritarian government. Their party controls everything,” he said.
Both Xi and Trump know the other has much to lose. The question now is the age-old diplomatic conundrum: Can they forge an outcome that gives both the option to declare victory?
