How China Is Playing To Win Trump's Trade War

(MENAFN- Asia Times) TOKYO - Few anticipated the self-control that Donald trump appears to be exercising toward China this week.

While North American allies Canada and Mexico are looking at 25% tariffs, arch-rival China got away with just 10%. No one is more surprised than Beijing policymakers who feared the worst as the Trump 2.0 era hits the ground running.

True, Ottawa and Mexico City managed to secure 30-day delays. But the tariffs are coming. Both nation's pledges to toughen border security won't stop Trump from achieving a multi-decade goal of sticking it to countries he thinks mooch off America.

Xi Jinping's rather laid-back response so far, by contrast, suggests China's leader is keeping his retaliatory options open - and his powder dry.

Beijing did announce a more limited 15% tariff on certain types of coal and liquefied natural gas, and a 10% tax on crude oil, agricultural machinery, large-displacement cars and pickup trucks. But bigger retaliatory efforts remain an option.

For now, Xi has every reason to believe he already has the upper hand versus Trump on a number of levels as the US leader wears out his global welcome in a hurry.

“The Trade War 2.0 may trigger a stagflation narrative as it involves not only US-China trade but with other major trading partners,” says Kelvin Wong, senior analyst at brokerage OANDA.

Tony Sycamore, market analyst at IG Australia, thinks the chaos has only just begun.

“The overnight pushing back of tariffs on Mexico serves as a reminder of the cycle we have entered: tariff announcements are followed by calls and negotiations, declarations of victory, and then the cycle begins anew,” Sycamore says.“Ultimately the path leads to higher tariffs, slower growth, higher inflation and less certainty for risk takers and equities.”

For one thing, the goodwill is gone. Hitting Canada and Mexico hard for questionable reasons signals that Trump's revenge tour is in full swing.

Trump's assault on the World Trade Organization order won't soon be forgotten. And the speed with which he threatened to wreck Colombia's economy over a minor diplomatic hiccup leaves little hope that Trump will act in good faith.

For another, Xi knows that China is less reliant on the US today than in 2017, the first time Trump entered the White House. As Carlos Casanova, economist at Union Bancaire Privée, points out, the impact of Trump's tariffs is“manageable” for China so far.

“US exports account for only 3% of [China's] GDP, compared to 15% for the rest of the world,” Casanova says. As such, he adds,“devaluation wouldn't significantly improve trade terms while potentially risking heightening tensions with other trading partners in Europe and Asia.”

Instead, Casanova notes,“China is likely to use a combination of tax exemptions and deflationary measures to offset the impact of expected tariffs, much like what we saw during the first trade war. China's commerce ministry indicated plans to bring a case at the World Trade Organization and vowed unspecified 'corresponding countermeasures' to protect its rights and interests.”

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