There’s a Chinese saying that stems from the philosophy in Sun Tzu’s ancient text “The Art of War”: You can kill 1,000 enemies, but you would also lose 800 soldiers.
Centuries later, the proverb is suddenly apt again, being mentioned frequently in discussions around Beijing. Now, it highlights the potential damage U.S. President-elect Donald Trump could inflict if he makes good on his threat to start a trade war with China, the world’s second-biggest economy.
Having backed off some other campaign pledges, it’s unclear if Trump will end up slapping punitive tariffs on China -- and Beijing has signaled some optimism he will be more pragmatic in office. Still, the message from China is that any move to tax Chinese imports would bring retaliation: The U.S. economy would take a hit and America would damage its longstanding ties with Asia.
“China wouldn’t like to see that happen,” Fu Ying, who chairs the Foreign Affairs Committee of the legislature and was a vice foreign minister until 2013, said of the U.S. imposing punitive tariffs. “But if so happens, it won’t be one-way traffic,” she said last week in Beijing.
While China has warned the U.S. against picking a fight, the prospect of a more protectionist America creates an opportunity for President Xi Jinping in Asia, where trade-dependent nations are nervous about the potential fallout. Xi has rushed to portray his country as a champion of free trade, and Trump’s actions could give him an avenue to build his clout. Xi has spoken of his desire for the same great-power status enjoyed by the U.S., pushing back against American hegemony since World War II.
“The U.S. has been using the approach of carrot and stick, and that is on the rocks,” said Wang Wen, executive dean of the Chongyang Institute for Financial Studies at Renmin University in Beijing. “China’s ‘trade first’ or ‘economic first’ foreign affairs policy in Asia is more advanced compared to the U.S.,” he said. “Asian countries need a peaceful international environment.”
Any dimming of American influence in Asia also presents China with the challenge of managing a regional order that has produced spectacular economic gains under the U.S.’s watch. Does it impose its agenda not only through economic power but by shaping geopolitics beyond its borders? Or does it stick to its favored stance of “non-interference,” focused on issues in its self interest like trade and climate change?
“China still lacks the experience in engaging global affairs, and still has a lot to learn in the international arena,” said Yan Xuetong, a member of the Consultation Committee of China’s Ministry of Commerce. “There will be challenges in the future for China along with its growing influence, and there could be sensitive international issues that force China to make choices,” he said.
“China holds a clear bottom line that it disapproves of the use of force in handling international disagreements,” said Yan, who is also director of the Institute of International Studies at Tsinghua University in Beijing. “China should work very hard to take a different approach from the U.S. in international affairs.”
For now, China has a two-pronged response to Trump’s elevation: Warn him of the consequences of unilateral action and accelerate efforts to secure an Asia-wide trade pact that does not include the U.S.
Beijing wants to seal the Regional Comprehensive Economic Partnership -- a 16-nation trade pact with Southeast Asian nations plus countries such as Japan and Australia -- “as soon as possible,” according to the Ministry of Commerce. It’s one way to pointedly differentiate China from a more inward-looking America. The next round of talks is scheduled in Indonesia from Dec. 2.
“Globalization is still the trend in the world,” Fu said. The “U.S. started it, you benefited from it and now you don’t like it. So what’s next? Do you have a substitute? Do you have a better option? The trend is not going to wait,” she said.
“Maybe we can better manage it.”
In terms of a direct response, China -- the U.S.’s biggest creditor and trading partner -- could potentially raise taxes on American imports and shift to alternate nations, she said. Indeed, she couched Trump’s threats in part as an opportunity.
“There are people in China who would be happy to use that moment” if the U.S. announced tariffs, Fu said. “There’re quite a few areas where some in China think our interest got hurt in trading, like soybeans -- we have completely lost soybean plantation to imports. We have more than a decade of good harvests, but we are continuing to import American wheat. Why should we?”
China is the largest importer of U.S. soybeans and bought $20.3 billion of U.S. agricultural products last year, according to the U.S. Department of Agriculture.
‘Sticking it to Foreigners’
“China has every economic and political incentive to signal early that it will retaliate proportionally,” said David Loevinger, a former China specialist at the U.S. Department of the Treasury and now an analyst at fund manager TCW Group. “President Xi Jinping can’t be seen as weak. Sticking it to foreigners will be just as attractive politically in China as it is in the U.S.”
More broadly, if Trump keeps his promise to withdraw from the 12-nation Trans-Pacific Partnership, China could better cement its position in Asia through its advocacy of RCEP, according to Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis SA in Hong Kong.
“A U.S. disengagement from trade with Asia would help, rather than harm, China, while a more aggressive approach to the bilateral relationship with China would risk undermining U.S. interests,” she said in a note. The production and trade structures of China and Southeast Asian nations are increasingly complementary, she said.
America remains a powerful country but no longer has global hegemony, said Yan, also director of the Institute of International Studies at Tsinghua University in Beijing. “The Chinese leadership does not want to challenge the U.S. dominance, but the U.S. has to find a way to deal with China, which is a major power and needs cooperation but not confrontation."
Fu echoed that, describing the current relationship as complementary.
“We can very well work with each other to find solutions to differences, instead of cutting down on each other,” she said.
--With assistance from Jeff Kearns and Kevin Hamlin.
To contact the editors responsible for this story: Rosalind Mathieson at [email protected]
© 2016 Bloomberg L.P