Xi Jinping understands that the fate of his regime is in Donald Trump's hands

By: Gordon Chang, author of the books Plan Red: China's Project to Destroy America [Plan Red: China's Project to Destroy America] and The imminent collapse of China [The Coming Collapse of China] / The Daily Telegraph
Translation: Telegrafi.com

On Wednesday, China's Foreign Ministry called on Washington to engage in trade talks. "What is needed now is not unilateral and additional tariffs, but dialogue and consultation based on equality and mutual respect," ministry spokesman Lin Jian told a news conference.

China's position was predictable. Beijing's rhetoric about "dialogue" has worked to its advantage many times before. However, this time the same thing is unlikely to happen.

Late last week, President Donald Trump, fulfilling campaign promises, announced 25 percent tariffs on Mexico and Canada and a 10 percent tax on Chinese goods. As he declared on social media, the tariffs were a response to “the major threat of illegal immigration and the deadly drugs that are killing our citizens, including fentanyl.”

Ottawa and Mexico City, announcing measures to strengthen their borders with America, quickly reached an agreement with Trump. China, instead of negotiating, decided to fight.

China's Ministry of Finance announced tariffs of 10 to 15 percent on a range of U.S. products and goods, including crude oil, some types of coal and liquefied natural gas, large cars and agricultural machinery. The Ministry of Commerce imposed new export controls on metal products and technologies and added two U.S. companies, PVH Group and Illumina, on the Untrusted Entities List. The State Administration for Market Regulation launched an antimonopoly investigation against Google-it which has virtually no activity in China. On Tuesday, China filed a formal complaint with the World Trade Organization [WTO].

But Beijing's response to Trump's measures has been tepid. "The Chinese retaliation measures are very weak," Anne Stevenson-Yang, of the J Capital Research based in Taipei. “Beijing has always known exactly who holds the winning cards, which is why its response to Trump’s latest tariffs has been notably sluggish,” said trade expert Alan Tonelson.

China's modest response shows that Xi Jinping does not want to escalate the "trade war." First of all, he is not in a position to wage a long confrontation: his economy, overloaded with debt, is stagnating.

Yes, China ended last year with seemingly impressive economic results, but the numbers were simply too good to be true. For example, the National Bureau of Statistics [NBS] reported a 10.7 percent increase in exports in December, a figure that exceeded everyone’s expectations. But China needed a strong fourth quarter to meet its stated target of around five percent GDP growth for the year as a whole. And, miraculously, the NBS reported a flat five percent growth for 2024.

"For decades, China has relied on exports to fuel its economic growth, create jobs and improve living standards, and thus keep the communist regime in power," says Alan Tonelson, who writes about the intersection of trade and geopolitics on his blog. RealityCheck"Now that its domestic economy is faltering badly, a safety valve for exports has become especially important. This gives a large import market, like the United States, more leverage than ever over this dangerous rival."

Both sides, Washington and Beijing, are currently trying to figure out whether a deal is possible. As Anne Stevenson-Yang, author of the book Wild ride: A brief history of the opening and closing of the Chinese economy [Wild Ride: A Short History of the Opening and Closing of the Chinese Economy], at this point neither side is "serious about a trade war."

She is right. If the US were truly determined, Trump would have imposed much higher tariffs on China by now. A year ago, he had promised overall tariffs of at least 60 percent or more on China. But with the 2018 tariffs and those added this month, America is still far from that figure.

Of course, this low tariff rate could be an invitation to negotiate. And it seems clear that China wants to negotiate. On Tuesday, Beijing announced that additional tariffs on American goods will take effect on February 10, a delay that clearly leaves room for negotiation.

So China is looking for a new trade deal. But a new deal is likely to be a trap. After all, Beijing did not implement the last agreement, the so-called Phase One, reached in January 2020.

And Washington has no reason to rush to a deal. Trump has the cards in his hand. More importantly, China runs huge trade surpluses. This week, the U.S. Census Bureau reported that America’s trade deficit in goods with China reached $295.4 billion [roughly 284 billion euros] last year, a significant increase from 2023.

Countries with trade surpluses have few weapons in trade wars. And smaller economies are at a disadvantage: China’s economy, which depends on trade surpluses, is less than two-thirds the size of the US economy – even if we believe the Chinese figures, which are almost certainly inflated.

Xi Jinping, refusing to make consumption the basis of the Chinese economy, has placed almost all his bets on exports to get himself out of trouble. In other words, he has placed the fate of the Chinese economy – and of his regime – in the hands of the leader of the world’s largest market, the US. Trump can now decide China’s future.

"China's position is clear and unchanging," a Chinese Foreign Ministry spokesman said on Sunday, in a statement released by the state-run agency. Xinhua"There are no winners in trade and tariff wars."

In this trade war, that statement is not true. And unless Trump allows himself to be intimidated by Xi, the winner will not be China. /Telegraph/