WASHINGTON – The calm following the Sept. 19 phone call between U.S. President Donald Trump and Chinese President Xi Jinping had barely ended when strong undercurrents surged, threatening to rock the entire ship.
First, the U.S. government widened sanction rules on Chinese companies. Beijing retaliated by expanding permitting requirements on rare earth materials needed in everything from smartphones to fighter jets. Trump hit back with threats to impose an additional 100% tariff on Chinese goods, clouding any prospect for a trade deal ahead of a possible summit in South Korea between Trump and Xi on the sidelines of the Asia Pacific Economic Cooperation summit later this month.
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“I threaten them with something I think is much more powerful. That’s tariffs,” Trump said Monday. “I could also threaten them with many other things, like airplanes,” Trump said, suggesting the U.S. could stop sending China airplane parts.
For its part, Beijing declared its resolution to counter any U.S. move. “Willful threats of high tariffs are not the right way to get along with China,” a Chinese commerce ministry spokesperson said. “China’s position on the trade war is consistent: we do not want it, but we are not afraid of it.”
Such is the game between the world's two largest economies, with both sides seeking an upper hand in the closely watched trade negotiations.
Leverage is the key tool for Trump and Xi
“I think both sides have tried to deploy lots of leverage ... to the advantage of their negotiating position,” said Nick Burns, the former U.S. ambassador to China in the Biden administration. “Both sides have used the issues they had that would create a more level playing field, and I think they’re at a point now of trying to define what success is.”
The match is more than counting one’s cards and comparing whose cards are stronger, said Craig Singleton, senior director of the China program at the think tank Foundation for Defense of Democracies. With both sides learning to weaponize their interdependence, they are operating in “a kind of equilibrium of vulnerability” where “dominance depends on who controls the rhythm of escalation, not who has more tools on paper,” Singleton said.
While the United States has greater capacity to impose costs, he said, China has a higher pain tolerance.
So far, China has flexed its muscles in its purchasing power of soybeans, its near-monopoly on the processing of rare earth elements and a toolkit to hit back in-kind. For the United States, the world’s largest economy, it has the most advanced technologies in computing chips and jet engines as well as the almighty dollar.
Beijing is going on offense
Jonathan Czin, a former director for China at the National Security Council during the Biden administration, says Beijing is going on offense with its expanded rules on rare earth products, an attempt to “start setting the terms of the bilateral dynamic.”
The Chinese leader is doing so probably partly because he has seen efforts by the Trump administration to “mollify” Beijing in the past several months, said Czin, now a fellow at Brookings Institution’s John L. Thorton China Center.
“I think (Xi) sees it as a sign that he has the upper hand,” Czin said.
A person close to the trade discussions, who spoke on condition of anonymity because of the matter's sensitivity, said the United States has been uncoordinated and perpetually surprised by Chinese retaliation. The person said China is planning one or two moves ahead and described the situation as China playing chess while the U.S. plays tic-tac-toe.
Gabriel Wildau, managing director of the consultancy Teneo, said the deal between China and the United States, if any, would not be “heavily imbalanced towards the U.S.” like the deals Trump has reached with other countries or the one he struck with Beijing nearly six years ago.
“Both sides have the leverage they need to achieve some version of their objectives, though neither side is likely to achieve the maximalist version of its agenda,” Wildau said. “If a deal is reached, it will because both sides are getting at least some of what they want.”