January 22, 2017 7:27 pm JST
Minxin Pei

By playing a longer game, China could turn tables on Trump

Beijing's choices include playing hardball, appeasement or something in between

Asian leaders trying to decipher U.S. President Donald Trump's inaugural address might benefit from the insight of Salena Zito, a journalist who wrote about Trump's election campaign in The Atlantic magazine. "The press takes him literally, but not seriously; his supporters take him seriously, but not literally," Zito observed last September when Trump's chances of being elected looked slim. Now that he is officially the 45th U.S. president, Trump's utterings -- whatever response they deserve -- must be taken both literally and seriously.

If that is the case, few Asian leaders would agree with Trump that his predecessors' policies have wrought an "American carnage." Most would take umbrage at his thinly veiled accusations that their hard-earned prosperity has come at the expense of America's middle-class whose wealth, Trump asserts, "has been ripped from their homes and then redistributed all across the world." Few would have any enthusiasm for Trump's "new decree" of "America first."

Among the intended audience in Asia for this "new decree," Chinese leaders would be the most worried -- and enraged. Beijing's frazzled nerves were on display even before Trump issued his manifesto of unvarnished American nationalism. Probably out of fear that any unfavorable coverage in the Chinese media might be interpreted by the thin-skinned Trump as evidence of hostile disrespect, China's censors have banned independent reporting of Trump's inauguration.

An earlier sign of a new, strategic (and some might say cynical) pragmatism in Beijing was the startling speech by China's President Xi Jinping at the World Economic Forum in Davos, just days before the inauguration. In that speech -- the first by a Chinese leader to the annual "power gathering" -- Xi laid out an agenda that was more in keeping with the ideas of a Western leader, extolling the virtues of free trade and liberal economic policies. In effect, it turned the tables on a U.S. that under Trump is already looking dangerously protectionist and isolationist.

After they have a chance to fully digest the implications of Trump's speech, however, it is a safe bet that Chinese leaders would feel vindicated by Xi's Davos speech as well as seething with rage. Besides portraying a reckless arrogance, Trump's implicit message that the U.S. has made China rich must sound both condescending and absurd to a government that has devoted the last four decades to a single-minded mission of delivering high economic growth. Trump's "decree," with its imperial undertone, must have been particularly jarring for his counterparts in Beijing.

Beijing's limited options

Until this moment, Beijing's strategy has been "wait and see." As nobody knew what a President Trump would do, such a strategy appeared sensible. But now that he has thrown down the gauntlet, Chinese leaders must start thinking seriously about their best course of action in dealing with the man who, however outrageous his bluster, occupies the world's most powerful office.

Beijing's options are limited. As the world's second-largest economy and a nuclear power, China is no pushover. Economic interdependence between the U.S. and China means that a trade war would hurt both parties. Nevertheless, in the looming showdown between the two major powers, the U.S. is not only more powerful in absolute terms, but it also has more tools at its disposal to prevail in a trade war and, as inconceivable as it seems right now, another Cold War. There is little doubt that such realization has given Trump a sense of superiority and confidence.

In the immediate future Chinese leaders, Xi in particular, face two equally unpleasant choices: The first is to play hardball. China will not fire the opening shot in this confrontation, but will firmly respond to Trump's protectionist measures and other provocations, such as his threat to undo the "One China policy." Such a tit-for-tat approach has its attractions. Internationally, China would gain the sympathy of many countries that are rooting for a great power like China to stand up to Trump.

Domestically, Xi, who is on his own mission to "make China great again," can burnish his image as a strong leader unafraid to say "no" to a bully. Such political courage to face down Trump would likely serve Xi especially well this year. In late 2017, the Chinese Communist Party will convene an important national congress at which Xi is expected to promote many of his loyalists to key positions and further cement his position as China's dominant leader. A Sino-American crisis would allow him to persuade his colleagues -- and the Chinese public -- to rally around him.

Obviously, such a course of action has huge costs. China's exports to the U.S., worth $483 billion in 2015, could plunge should Trump impose punitive tariffs across the board. The resulting fall in China's trade surplus would put further pressure on the Chinese currency and exacerbate capital outflows. Hundreds of thousands of workers in China's export-oriented manufacturing sector would be laid off. China's growth could nose-dive. Yet, even in such an economically devastating scenario, Xi and his colleagues may not have to pay an immediate political price because they can easily blame Trump for China's economic woes.

While a tough response may be politically attractive in the short term, the long-term consequences for China could be calamitous. Trade constitutes the foundation of U.S.-China relations. Escalations of a trade war will, left uncontrolled, inevitably destroy this foundation and lead to a full-scale deterioration in relations. In the worst-case scenario, the U.S. and China may find themselves locked in a new style Cold War.

Given the stakes involved, the second option -- accommodation -- may not sound too distasteful. The essence of this strategy is to absorb Trump's initial blows without fighting back or retaliating with full force. For example, if Trump imposes punitive tariffs on the grounds of Chinese currency manipulation (a ludicrous assertion in light of Beijing's costly efforts to prop up the value of the yuan), Beijing could take the U.S. to the World Trade Organization instead of hitting back with its own retaliatory measures.

Should Trump levy anti-dumping duties on Chinese steel and aluminum, China could respond with symbolic moves, at most, to avoid further escalation. A strategy of accommodation might work in dealing with Trump because all the new American president cares about, based on his self-claimed talent as a deal maker, is the appearance of scoring a "win" -- getting a better deal than the other guy.

As we have seen in Trump's past behavior as a real estate developer, a reality show host and a political entrepreneur, the man cannot countenance the thought nor appearance of losing anything. Allowing him to win the first round may not be as bad as it sounds, even though Beijing will surely lose some face.

Dealing with accommodation

Regrettably, accommodation has its own costs and limits. Besides suffering a loss of national prestige, Xi could find his leadership under attack at home. In the four years since coming to power, Xi has carefully cultivated an image as a strong leader. Kowtowing to Trump would be repugnant to him.

Even worse, nobody knows what Trump's bottom line is. How will he measure the success of his protectionist policy? Does he want to eliminate the U.S. trade deficit with China altogether? In all likelihood, Trump will not bring back the jobs he has promised so loudly to voters in the American rust belt. Then what? China may be able to temper its response initially, but if Trump interprets Chinese restraint as weakness and ups the ante, Xi will have no choice but to respond in kind.

So what is to be done?

For the moment, the best course of action for Beijing may appear to be a combination of the two approaches. It makes more sense for China to try to respond to Trump's offensives in a restrained and measured manner so as to avoid a total collapse of relations. Should Trump choose to escalate further, China will then have to play tit-for-tat. Having initially given cooperation a chance, Xi can then push back against Trump from what would be perceived as the moral high ground. In that respect, Xi's Davos speech could be seen as preparing that increasingly fertile terrain.

Minxin Pei is a professor of government at Claremont McKenna College and the author of "China's Crony Capitalism" (2016).

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