First of all, I am not a Chinese national. I have no loyalty to Chinese government. I don’t think I am biased toward China in general.
If the above don’t meet your criteria, please stop reading now.
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But I am worry about how this trade war is going. I am absolutely against Trump in starting this trade war. I worries about how Xi is handling the trade war. I felt this trade war could potentially spiral into something a lot worst.
Trump is a bully and an as-hole, but he is also a businessman. He is perpetually looking for the “best deal”. But Xi has to offer that “best deal”.
The way Xi is reacting to Trump is as he seems to be operated out of fear. He seems to be afraid that he would do too much to antagonize the US to a point where both parties will unite. He seems to be afraid that he would antagonize the US to a point where US and EU will unite. He is afraid to cause a cycle of perpetual retaliations.
By the way, he may also be operating this way to act as a responsible global citizen. Nobody knows how Xi thinks except himself. But I can see his actions. From his actions, Trump will most likely perceive as fear and weakness on Xi’s part.
It seems like whenever Trump pushed, Xi resisted, then Xi gave a little. There is never that “best deal”. If every times Trump pushes, he got a little something more, why would he ever want to stop? In addition, the price of pushing China is so little (because Xi allows Trump to take the initiatives), why would he not want to keep on trying. I believe China said that they had a verbal agreement a few months ago. But Trump renegade. Trump is very instinctual. He is going to keeping on pushing as long as there are benefits for him to do so.
But most importantly, Xi allows Trump to take the initiatives. Trump decides the boundary of the battle. He wants to keep the battle within the bi-lateral import and export. Of course he wants to do that, China ran a lobe sided trade surplus, thus this is a battlefield heavily tilted against China. But why does China want to stay within this artificially created battlefield. Why is China allowing Trump to have a diplomatic victory with North Korea? Why doesn’t China react more strongly when Trump withdraws from the Iran treaty?
China has one great advantage that US doesn’t have. China has lots of money. In addition, the government of China can spend that money wherever, whenever, and however she wants while Trump can’t because money come from the Congress. If Xi is willing to spend money where it would hurt Trump or US (even if it doesn't help China, so I am not talking about Belt and Road), he can create so many new battlefields that are tilted favorably to China.
Trump is starting the trade war. A trade war is supposed to be painful because it causes supply chain relocation. But supply chain relocation is only truly painful if it occurs abruptly. But Trump is succeeding in doing a soft landing on the supply chain relocation by giving the companies plenty of time to relocate (The intend to start the trade war occurs on 3/22/2018, even now only $50B worth of goods were tariff, but all the factories in China know they need to relocate big part of their factories to other countries).
But why is China allowing it. 50% tariff on $25B has a lot more impact than 25% tariff on $50B. 25% tariff (alone with 10% depreciation of RMB) might allows for slow relocation while 50% tariff causes inflation or unavailabity of the goods.
Trump is picking tariff in batches. The 1st batch has the least impact on US, the 2nd batch has 2nd least impact, etc.
Trump is deciding the where, the when, and the how.
Why does China allow Trump to has this smooth and nice built up? Why can’t China impost export tax on the products that will affect US the most (for example 50% export tax on $10B of products that US has trouble source from others)?
Trump is taking initiative in starting new battlefields where US has great advantages. He targeted ZTE. It took Xi’s personal phone call to Trump to “resolve” this. First, it is not much of a “resolve” when the result is having the company reports to US’s embedded compliance team. I am pretty certain in the future; historian will call this an unequal agreement.
The second I heard about this, I knew all the great Chinese companies will be in danger. Again, Trump is taking initiatives. He created leverage out of thin air and got something out of it without much pain. Why doesn’t Xi counter attack? Why does Xi has to cater?
ZTE might be forced to go bankrupt against the US. But it doesn’t have to if it has the full support of China. ZTE can buy low end chipset from Spreadtrum, mid end chipset from Taiwan’s Mediatech, and (China can force) Huawei to sell high end chipset to ZTE.
Even if ZTE is forced to go bankrupt, so what? ZTE is a state own company. All the research, equipment, and personnel are within China. The company is easy to re-constitute.
It is easy to counter attack. For example, most of the technology companies have suit/countersuit between US and Chinese companies. Lets take Micro Technology and SMIC as an example, each are suing each other in China for IP infringement. All it takes is for a court to issue injunction on SMIC’s behave and forbid Micro Tech from selling significant part of their product in China until the injunction is lifted.
Now, Trump goes even further. He basically “kidnapped” Huawei’s daughter. Again, Xi does nothing against US. Why won’t Trump ever stop if there is no pain? Or why would any future US politician want to stop attacking China since they can look strong in front their electorate without suffering many consequences?
I am not talking about overwhelming attack. I am only talking about proportional counter attack. I came out with quite a few (4 or 5 or more) ways of counter attacks. But frankly, it is not important. I am certain Xi (from his excellent economic officials) has a lot more ways to counter attack that are in proportion and provides maximum pain to its opponents. But it is more of a question of will. Is he willing to do it?
Old guards such as Mao Zedong and Zeng Xiaoping, who were great generals, understand the necessity of taking initiatives. They understand that when they order a company to take over an enemy position, they will take casualties and losses. The only way to not take loss is to get inside a castle and play defense. But playing defense is also the sure way to lose everything.
