In its long history, China hasn’t been used to being pushed into a corner.
In its long history, China hasn’t been used to being pushed into a corner. But it is in that situation this week in trade negotiations, where it’s being called on to negotiate a deal under the threat of new tariffs from Washington.
Washington’s threats have left observers guessing what Beijing’s next step will be.
One of them is Xiaomeng Lu, China Practice Lead at Access Partnership, a global public policy consultancy for the tech sector. She thinks that the Chinese side is taking Washington’s threat seriously, but thinks that Beijing has learnt how to deal with it.
“The Chinese have learnt to take Trump seriously, albeit not literally over the past year,” says Lu. “It’s significant that they didn’t immediately threaten to escalate the tariff war, nor did they cancel Vice Premier Liu’s Washington, D. C. trip overnight.”
Lu sees three possible options for China at this point.
Plan A: “the Chinese delegation will come to D. C. and carry out the negotiation as scheduled.” She assigns 40% chance to this plan.
Plan B: “delay the 11th round, which means the final deal is unlikely to be closed by the end of June. She gives 40% chance to this plan.
Then there’s plan C: “further escalation of the trade war.” She assigns 20% chance to this plan.
At any rate, Lu is optimistic that the two sides will eventually come to the negotiation table and work out a solution. “At the end of the day, even if there’s a standoff, the two sides are still likely to come back to the table,” she says. “Both economies are off to a good start in the first quarter of 2019; U. S. unemployment rate looks better than China’s; U. S. futures and the yuan experienced its biggest daily loss in three years after Trump’s tweet. Both Presidents are still facing some domestic pressure to claim short term victory. With a deal in hand more is to be gained than lost for both sides.”
Brett Ewing, Chief Market Strategist, First Franklin Financial Services, is optimistic, too. “I am focused on the positive signals that the Chinese delegation is sending by keeping the scheduled May 8 trip to Washington,” he says. “I think it sends the proper message that they are interested in making a deal this week, especially in light of the administration’s latest comments. China is in no position to continue dragging out the trade war, considering the weaknesses in the Chinese economy.
