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China has reasons to keep fighting a trade war

How a protracted tariff feud actually benefits Beijing.

- September 3, 2019

As new U.S. tariffs on Chinese goods took effect this week, China filed a case with the World Trade Organization alleging unfair trade practices.

Some commentators continue to label the escalating bilateral trade war a “lose-lose” conflict. For example, NBC commentator Ali Velshi recently declared, “This is the worst kind of trade war because it’s lose-lose for everybody, right? The U.S. is losing. … China is losing – and they’re probably hurting more than we are in the United States.”

There’s little doubt that the U.S.-China trade war is taking its toll. As the world’s two most powerful economies desperately try to out-tariff each other, fears of a global recession are intensifying.

Continuing this feud hurts both sides – so one might think there’s an incentive to compromise. Yet while the U.S.-China trade war is a “lose-lose” economically, that may not be the case politically.

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Political science literature suggests a number of reasons the Chinese leadership, in particular, could actually benefit from a protracted trade war. Three reasons stand out – and explain why Beijing might not back down to Washington’s demands anytime soon:

1. The trade war gives China a clear enemy

Extensive research on “diversionary politics” hypothesizes that there’s nothing that political leaders value more than an external villain. Especially for an authoritarian regime, an enemy deflects attention from problems at home, gives citizens a target to rally against, and galvanizes nationalistic fervor. For China, the Trump administration is the perfect foil: brash, unapologetic and politically vulnerable.

Chinese President Xi Jinping hasn’t hesitated to criticize the Trump administration and to leverage the trade war to strengthen his power. As Trump has clumsily argued that tariffs are costless for U.S. consumers, Xi has implied that winning will require heroic sacrifices from Chinese citizens all banding together.

Amid rising economic tensions with the United States, Xi has even drawn an analogy that goes to the heart of the Chinese Communist Party. He has urged citizens to prepare for a new “Long March,” referencing the legendary 4,000-mile trek that Communist forces took in 1934-1935. After much hardship, the Red Army remobilized to seize power in China in 1949.

The Chinese leadership wants to win the trade war but, even more, it needs to thwart challenges to its legitimacy. Pro-democracy protests raging in Hong Kong also bring the possibility of similar troubles on the mainland, so Xi probably feels added pressure to convince the Chinese people that he’s on their side. Having a clear antagonist like Trump makes that easier.

2. There’s an opportunity for China to sow divisions in the West

Scholarship frequently examines how rising powers like China challenge the geopolitics of a unipolar world dominated by the United States. Just as Russia interfered in the 2016 U.S. elections to sow discord and to flex its muscles, fraying U.S. alliances and political mayhem in Washington can clear the brush for China’s ascent.

Conventional wisdom holds that China is playing a waiting game in the trade war. Here’s the thinking: Xi is betting on a Democrat to win the White House in 2020, and he’ll seize the opportunity to broker a more favorable deal. Yet an alternative theory is that China is deliberately exploiting the trade war to upset business-as-usual in American politics and to wreak havoc on U.S. foreign policy.

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Anthony Scaramucci, the former White House aide who became a Trump critic, has made exactly this point. “The Chinese leadership could actually want @realDonaldTrump to stay in power,” he tweeted. “They think long term. Imagine another 5 years of him completely destabilizing the Western Alliance and annihilating the global trading system.”

Most analysts agree that China has its sights set on rivaling (or even eclipsing) the United States as a global superpower within decades. Political discord among Western leaders and the inability of the U.S. government to tackle big challenges – including keeping its economy afloat – can help China achieve its goals more quickly.

3. And China’s leadership can send a clear message

A large body of literature on “signaling theory” examines how political leaders credibly commit to taking tough courses of action. This directly speaks to the how countries form reputations for determination. While some scholars suggest that national reputations can’t be won through fighting, seminal research on deterrence insists that proving a willingness to inflict pain on the enemy is what matters most.

To the extent that nations can craft a reputation for resolve, the trade war presents Xi with a rare and unusually high-profile opportunity to send a loud and clear signal that China won’t be tossed around on the world stage. For Xi, refusing to budge in the trade war may preempt future challenges from adversaries – and prove that China is a force to be reckoned with.

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This is an important point because the United States isn’t the only nation that currently rails against China’s unfair trade practices, including forced technology transfers and intellectual property theft. As Chinese telecom giant Huawei seeks to penetrate new markets with its 5G technology, countries like the United Kingdom have also been reluctant to do business with China.

China’s immovability in the trade war could make competitor nations less likely to pick a fight with it going forward. By refusing to blink, Xi is signaling that China won’t be bullied, that it’s ready for the long game – and unafraid to retaliate against countries that cross it.

Ultimately, the U.S.-China trade war is about economics. But it’s about politics, too. Politically, it looks like China has plenty of reasons to keep fighting.

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Thomas Gift (@TGiftiv) is a lecturer of political science and director of the philosophy, politics, and economics (PPE) program at University College London.