MNI SOURCES: US-China Gov't Sources Say Trade War Unlikely

     BEIJING (MNI) - From the beginning of Donald Trump's presidency, the

possibility of a large-scale trade war between the world's two largest economies

has unsettled global markets. The Trump administration's latest moves, including

anti-dumping charges against Chinese aluminum sheets and denying China's bid for

market economy status, only further fanned these concerns.  

     However, the Chinese government doesn't see the Trump trade moves as

significant enough to risk a trade war, or even elicit any retaliation, such as

restricting U.S. agricultural exports, a potent weapon that would directly harm

pro-Trump Midwestern voters, sources close to the Chinese government told MNI.  

     The Chinese government feels no pressure to act and instead will bide it's

time and wait to see how the Trump administration policy positions evolve,

particularly after next autumn's key Congressional elections. 

     China sees the latest trade shots fired as politically motivated to show

Trump's domestic base that he is fulfilling its "tough on trade" campaign

promises, a source close to the Chinese Ministry of Commerce (MOFCOM) said.

Despite some turmoil on the surface, the political rhetoric, the strong

bilateral Sino-U.S. trade relationship remains intact, the source said. 

     Speculation of a trade spat mounted after the U.S. Department of Commerce

self-initiated dual anti-dumping (AD) and countervailing duty (CVD)

investigations of Chinese aluminum sheet imports, without direct complaints from

the domestic industry. And last Thursday, the Wall Street Journal reported that

U.S. Trade Representative Robert Lighthizer argued in an official submission to

the World Trade Organization in support of the Europe Union's position against

recognizing China as a market economy, which would limit the ability of the EU

and US to bring trade actions against it. 

     The commerce department said Chinese aluminum sheet imports were valued

about $600 million last year. That is only a fraction of the $300 billion

U.S.-China trade deficit deficit last year. 

     China's official reaction was measured. In a short statement, a mid-level

Ministry of Commerce official expressed "strong dissatisfaction over the

protectionist tendency" and that it would act to protect its own industry. There

haven't been follow-up steps this week. 

     A Chinese government scholar told local media that the U.S. opposition to

China's "market economy status" was consistent with its past positions. In a

daily briefing this week, the Chinese Foreign Ministry spokesman gave a tepid

response to the issue and stressed President Xi Jinping's telephone call with

Trump, suggesting the trade spat won't derail its cooperation on North Korea. 

     China's reaction has followed a pattern of restraint this year, in contrast

with the global reaction to Trump's bombastic behavior that has been marked by

disgust, mockery and lament. China rarely gets in war of words with Trump.

Trump's tweets, along with Twitter, are blocked by China's Great Firewall,

therefore receiving little coverage. Local media's coverage of Trump instead

focuses on his wealth, his supposedly "businessman" approach and his flatteries

of China. Chinese public swooned after Trump posted a video during his visit

last month of his granddaughter speaking Chinese.

     The muted reaction is due in part to China not allow criticism of its top

leaders, and by extension, leaders of most foreign powers (with the exception of

leaders of Japan or Taiwan, who are deliberately vilified). China adopted a

disciplined approach to comments on Trump as soon as it became apparent he would

become U.S. president. 

     "When Trump gyrates, we cannot afford to swing," the Chinese government

source told MNI. "When the United States is in the middle of mayhem, China needs

to steady itself even more; when two waves amplify each other, the consequences

will be disastrous," the source said. 

     China knows the current U.S. government is in chaos. The people in the

Trump administration are either self-interested or lack the vision to project an

actionable alternative to the status quo. "Steve Bannon, Lighthizer, these

people are stuck in a bygone era," they do not really represent America's core

interests, the source argued dismissively. 

     The Trump administration has not yet proposed concrete actions to reduce

the bilateral trade imbalance, the MNI source said, echoing views by local

commentators.  

     "Economic ties with the U.S. is existential to our future. [Communist

Party] General Secretary Xi Jiping made this very clear at the 19th Congress,"

Mao Zhenhua, director of joint economic research at Renmin University, told MNI.

"Everything can be put on the table and we are prepared to negotiate. But the

U.S. side hasn't presented actionable requests." 

     Whether it's the Comprehensive Economic Dialogue or negotiations over the

Bilateral Investment Treaty, the momentum for cooperation between the two

nations has stalled, a source at the U.S. embassy in Beijing familiar with the

economic and trade negotiations told MNI. 

     One reason is that the divided U.S. interests often undermine each other

when negotiating with China, allowing China to play one side against the other,

the source said. Trump's undermining of Secretary of State Rex Tillerson's

standing and the many U.S. diplomats jumping ship have also left the U.S. trade

and economic teams rudderless.

     But while China tries to project "non-interference" as the different U.S.

factions squabble, sometimes it can't contain its glee at the disarray. On

Monday, the English-language mouthpiece China Daily cited a commentary run by

the Beijing Youth Daily, not allowing the provocative comments be interpreted as

an official government response. It was authored by Ma Xiaolin, a former

propaganda official at the Xinhua News Agency and now a university professor.

     Ma wrote that widespread speculation over Tillerson's future as U.S.

secretary of state is but one of the many incidents that has revealed Trump's

lack of experience and strategic view of global affairs. Trump has also engaged

in self-inflicted "trouble-making" by making about-face comments after leaving

Beijing last month, Ma argued. Trump trumpeted the multiple business deals won

from China during his Beijing visit and agreed to pursue diplomacy to resolve

the North Korean nuclear crisis. Yet only a month later, Trump provoked another

DPRK missile test by re-labelling North Korea a state sponsor of terrorism, and

risked a "trade war with China" by opposing China's push to gain recognition as

a market economy in the WTO. 

     Noticeably, the China Daily omitted the sensitive "trade war with China"

expression in its translated citation. That shows that as much as China is irked

by the confrontational shots fired by the U.S. side, it wants to play down these

issues, MNI's government source stressed. 

     "Never in recent history have we seen the two biggest ideological rivals so

economically intertwined," the source said. A trade war is unimaginable, and

even Trump understands that. The U.S. president also knows trade deficit with

China doesn't represent debt nor can it be resolved easily, but he is employing

the issue to garner support from his political base, the source argued.

     MNI's U.S. diplomatic source agreed that an outright trade war with China

is very unlikely. The U.S. cannot succeed alone in a large-scale trade

confrontation, because China could undermine the effort by engaging more with

the EU or other trading partners. The Trump-led U.S. administration has, on the

contrary, weakened its traditional alliances, making it easier for China to

divide and conquer.

     If the Republicans retain control of Congress in next year's election, so

Trump knows his presidency is more secure, that's when his administration may

formulate a constructive trade strategy, the government source said. Until then,

Trump will be preoccupied with domestic politics and so there is little China

can do but to focus on managing its own economy well.  

     In many ways, the vacuum created by the withdrawal of U.S. leadership in

the world may be a good thing, the source close to the Chinese government

argued. Countries now are forced to address their own issues without referring

or deferring to the U.S., he said, citing Saudi Arabia's recent steps at reform.

     This is certainly a boon to China, allowing it to pursue its reforms and

build broader trade relations with nations alienated by Trump. Had Trump not

pulled the U.S. out of the Trans-Pacific Partnership, China would have faced its

biggest economic challenge ever, he admitted. The combined size of the 11

non-U.S. members is just about the same as China, meaning the TPP including the

U.S. would have easily limited China, he said.

     Minus the U.S., the TPP-11 is no match for China, he said.

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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