China wasted very little time in signaling on Monday that President Donald Trump isn’t the only one who can escalate a trade war. As the Chinese currency slumped below 7 to the dollar for the first time in a decade, officials in Beijing were telling state buyers to halt purchases of U.S. farm products.The clear signal: President Xi Jinping and his team aren’t planning to buckle under Trump’s latest tariff threats. If anything they’re sounding more than willing to call his bluff and play the long game. That’s one of several reasons the U.S.-China trade war casting a shadow over the global economy looks increasingly like it risks becoming the Forever War. Here are a few more:
- Neither the U.S. nor Chinese economies are suffering enough yet to force a deal. That may change. But with the Federal Reserve offering an implicit safety net for the U.S. last week and China’s leadership willing to weather a slowdown there, the economic pain appears to be short of any threshold.
- The bromance between Trump and Xi seems to be ending, with both signaling they see weakness rather than strength in the other’s domestic position. Trump seems convinced China’s economy is slowing more dramatically than it is and that it presents an existential threat to Xi even as he expresses frustration with Chinese policy makers’ willingness to pull levers to offset his attacks. Meanwhile, Xi is sending signals he is ready to wait until next year’s U.S. election and that he knows Trump’s political weaknesses. Ergo the move to cancel agricultural purchases Trump wants so dearly.
- Talks are going nowhere. A dinner at the Shanghai Peace Hotel for negotiators from both sides last week appeared designed to send a message to the outside world that a truce struck at the G-20 in June could hold. But the lack of progress in the room the next day prompted Trump’s tariff threat. Meanwhile, there are worries in both Beijing and Washington that Trump is now more focused on a mini deal involving purchases of farm products than a bigger, more meaningful pact.
