Commentary: China is playing the long game on trade. It’s working

SINGAPORE: President Donald Trump’s trade war was meant to rebalance global power in America’s favour. Instead, China is playing the long game, enduring short-term economic pain to shape any eventual deal to its advantage.

The strategy appears to be working – for now. On Monday (Aug 11), Washington granted Beijing another 90-day reprieve, extending a pause on tariffs through Nov 10. China announced it would do the same. Markets welcomed the move, which offered some relief after months of tension. The delay will give President Xi Jinping’s policymakers more time to plan their next move.

Time is Xi’s ally. So far, the clearest outcome of each round of talks has been a commitment to meet again. Despite Trump’s insistence that China has taken significant steps to improve their trade relationship, Beijing has made no consequential concessions on any of his key concerns. (China has offered some small compromises, none on the scale of American demands.)

The extension has come at a delicate time for the economy, which is plagued by sluggish domestic demand and a slowdown in the property sector. Bloomberg Economics says that China is among the few major nations without a clear timeline or terms for a deal, while others have struck agreements to secure lower tariffs. Even with this reprieve, it notes, Beijing faces average US tariffs of 40 per cent – almost 25 percentage points above the global average.

This will hurt prospects for Chinese citizens, who have enjoyed more than three decades of near double-digit growth. The economy expanded by 5.2 per cent in April-June from a year earlier – enviable by global standards – but anxieties among the once-thriving middle class over the future for their children are rising.

Youth unemployment remains stubbornly high, with joblessness at 14.5 per cent in June. That figure has improved in recent months, but analysts point to significant challenges: More than 12 million university students are set to graduate with hopes of joining the workforce.

A LONG BATTLE

Still, China is betting that despite these economic costs, it can fight this trade war to the end.

Politically, Beijing is preparing the population for a long battle. State media editorials in recent months have lauded a Mao-era philosophy as a possible strategy to counter American pressure. They reference the former Chinese leader’s 1938 essay On Protracted War, which laid out his approach to combating the invading Japanese between 1937 and 1945.

During a series of lectures in May and June 1938, Mao spoke of how the “contest of strength is not only a contest of military and economic power, but also a contest of human power and morale”. Scholars say the idea was to alert his fellow citizens that the war would be long and gruelling, but could be won through endurance and unity.

Despite millions of Chinese dead, Mao refused to yield. The conflict only ended after Japan surrendered in World War II in 1945. (Mao’s civil war with the Nationalists lasted another four years.) Xi appears to be heeding his predecessor’s counsel: patience, at all costs – with the aim of shifting the odds in Beijing’s favour.

CHINA’S STRATEGY OF SELF-RELIANCE

Domestically, Xi has the levers of the Chinese state at his disposal to help him craft a now well-worn narrative that the West is keeping China down. The trade war has fuelled those views, which play well with an already disgruntled citizenry.

Internationally, Trump is doing much of the work for him. In contrast to Washington’s chaos on everything from trade to international students’ university admissions, Beijing is presenting itself as a champion of multilateralism – notwithstanding that it’s also trying to reshape the world order to its advantage.

China is happy to keep the talks going, but is unlikely to make any concessions, as William Yang, the International Crisis Group’s senior North East Asia analyst, says in a note. “China believes momentum is on its side because Trump has a stronger desire to sign a deal with Beijing so that he can claim victory and secure a summit with Xi in the fall.”

But Washington’s economic leverage is gradually eroding, as China pushes ahead with its strategy of self-reliance. Beijing wants to reduce dependence on US markets, and deepen control over critical supply chains, as a report from the RAND thinktank notes.

China on Monday urged local firms to avoid using Nvidia’s H20 processors, especially in government projects, following a White House directive requiring it and AMD to pay 15 per cent of Chinese AI chip sales to Washington.

As Mao wrote, “final victory will not come about without human action”. Trump may tout his successes in bringing China’s economy to heel. By betting on time and resilience, Beijing is showing it’s willing to wait for the win.