Facing another US tariff hike, Chinese President Xi Jinping is getting tougher with Washington instead of backing down.
Beijing fired what economists called a “warning shot” at Washington by letting its yuan currency weaken in response to President Donald Trump’s latest threat of more punitive import duties on September 1.
Chinese buyers cancelled multibillion-dollar purchases of US soybeans. Regulators are threatening to place American companies on an “unreliable entities” list that might face curbs on their operations.
Both sides have incentives to settle a trade war that is battering exporters on either side of the Pacific and threatening to tip the global economy into recession.
But Xi’s government is lashing out and might be, in a revival of traditional Chinese strategy, settling in for prolonged wrangling in response to what it deems American bullying and attempts to handicap China’s economic development.
Negotiators are to meet in September in Washington, but China’s political calendar makes progress unlikely. The ruling Communist Party is preparing to celebrate its 70th anniversary in power on October 1 – a nationalism-drenched milestone that puts pressure on Xi, the party leader, to look tough.
Six months ago, Chinese negotiators were discussing possible concessions including more purchases of American farm goods, market opening and changes in business rules.
But by May, Chinese leaders had turned skittish in the face of what they saw as constantly shifting American priorities on a list of demands that range from narrowing their trade surplus to opening markets to possibly scrapping their economic development strategy.
Talks broke down in May over how to enforce any settlement. Beijing says once it takes effect, Trump has to lift punitive 25 per cent tariffs imposed on $US250 billion ($A370 billion) of Chinese imports. Washington insists the tariffs stay to enforce compliance because Beijing has broken too many past promises.
The tone of Chinese state media toward Trump, relatively mild to that point, turned nasty. The ruling Communist Party’s newspaper The Peoples Daily accused Washington of “American bullyism”.
“Good faith broke down and we took many steps backward,” said Bryan Mercurio, a former Canadian trade official and law professor at the Chinese University of Hong Kong.
Despite a June agreement by Trump and Xi for more negotiation, neither has shown willingness to compromise. A round of talks in Shanghai last month ended with no sign of progress.
Chinese suspicions deepened when, after the May talks, Trump imposed sanctions on telecom equipment maker Huawei Technologies Ltd., blocking its access to American technology. Trump cited security concerns but Chinese officials saw an attempt to cripple China’s first global tech brand.
Washington is “using improper official measures to suppress Chinese enterprises,” a foreign ministry spokeswoman, Hua Chunying, said last week.
Xi might feel more confident because, after facing accusations he bungled relations with China’s biggest export market, he has strengthened his political position and silenced critics, said Willy Lam, a politics specialist at the Chinese University of Hong Kong.