Hello, viewers, welcome to “Qin Bei Observation.”
Today’s focus: The tough new team and policy direction of Trump has made Zhongnanhai restless, especially Trade War 2.0, which is expected to deal a heavy blow to the Chinese economy. Therefore, while the CCP is showing a relaxed attitude on the surface, it is actually gearing up for a showdown with the US.
Today, let’s discuss whether the tricks planned by Zhongnanhai will be effective.
The Trump administration is the most hawkish towards the CCP so far, not only reflected in the team but also in major policies.
Currently, Trump’s new policies are generally recognized to have two main focuses: America First and containment of the CCP. This was echoed by Taiwan’s Director of National Security Bureau, Tsai Ming-yan, on November 14.
From the perspective of America First, the Trump administration’s established goals internally are to freeze climate regulations from the Biden era, adopt protectionist measures for American products (especially in high-tech industries), streamline federal bureaucratic agencies and costs, deregulate, and strengthen American manufacturing.
Externally, the core target is to calm two major conflicts, create peace in the Middle East and Europe, shift major resources to the Indo-Pacific, and contain the CCP. Methods include geopolitics, decoupling of economic and trade relations, supply chain security, and export controls. Trump will also strengthen relations with Taiwan, stating that if China invades Taiwan, he will bomb Beijing or raise tariffs to 200% if China “enters Taiwan.”
One of Trump’s notable moves is Trade War 2.0, which has the greatest global impact and attention. Insiders revealed that Trump wants his former trade representative, Robert Lighthizer, to become the “Trade Tsar,” giving him broad oversight over trade policies of the entire government, including the US Department of Commerce and the Office of the US Trade Representative. Although not officially appointed yet, multiple US media outlets have reported that Lighthizer is already at work and his trade team is expected to implement Trump’s tariff proposals shortly after his January inauguration.
A document shows that Lighthizer and his allies have been distributing memorandums, aiming to convince legislators and the public that significantly increasing tariffs will inject vitality into the economy rather than causing distress. This counters a statement by 23 Nobel Prize-winning economists who believe Trump’s tariffs will damage the US economy. Lighthizer criticizes the economists, pointing to the 19th-century economic growth amidst high tariffs, emphasizing that tariffs have been successful as Trump claims.
In summary, Lighthizer asserts, “Tariffs have been hugely successful, just as Trump claims.”
Politico suggests that Lighthizer’s preemptive response against expected tariff criticisms is not only laying the groundwork for Trump’s large-scale tariffs but also signals greater adjustments in trade during Trump’s second term.
On a global scale, under Trump’s tariff and trade policy influence, countries like China and Mexico face investment risks, while India and Brazil may emerge as winners in the eyes of investors. The most impacted, undoubtedly, is China. Comparing Trade War 1.0, which focused on correcting China’s trade disparities with the US, Trade War 2.0 seeks to decouple from China and enhance US manufacturing, targeting more than just China.
Trade War 2.0 aims to force manufacturing relocation back to the US, specifically targeting China, Mexico, and EU. Trump promises tariffs as high as 60% on China, 20% on Mexico, and 10% on other trade partners, possibly focusing on countries with large trade deficits with the US or specific industries like the automobile sector, such as Germany. The US-EU trade conflict is assumed to be less intense, with tariffs used as leverage to increase US auto imports or force German car production in the US.
Many skeptics question if the US will truly decouple from China. In Bob Davis’s book about Lighthizer in 2023, he outlines Lighthizer’s support for a comprehensive disconnect from China economically and technologically.
Moreover, China may attempt to resist America by rallying US allies, including Europe and Asian allies, and expanding influence in South America through BRICS and other regional powers.
Recently, a report from the Hong Kong-based South China Morning Post states that China plans to invite leaders from 10 international organizations to Beijing in December to discuss how to handle global uncertainties and understand China’s economy better. However, it remains unclear how much influence these organizations can offer Xi Jinping.
Given China’s economic challenges, particularly in real estate investment, technology independence, and failed economic stimulation policies, dealing with Trump’s new trade war poses significant obstacles. In response, China may ramp up central control, limit exports of key minerals, levy new tariffs on specific US industries, and focus on boosting domestic consumption.
Despite these efforts, China’s readiness for Trump’s trade tactics remains uncertain. The Trump administration’s tough stance is a result of China’s continuous disregard for international rules, including failure to fulfill previous trade agreements.
With the US staunch approach, China’s plans for a united front with US allies against Trump’s tariffs seems unlikely to materialize. Europe’s weakened position and dependence on the US, coupled with internal divisions related to energy costs and immigration, further complicate China’s strategy.
In conclusion, Xi Jinping’s preference to reach an agreement with the US stems from China’s deteriorating economic conditions, previous trade war setbacks, failed economic stimuli, and reduced US market share in China’s imports. As China prepares for the new trade war, the focus on expanding domestic consumption is crucial.
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