US win the trade war
Trade war"China's goal is not to win against Trump"
There still seems to be no end in sight to the trade war between China and the USA. The conflict has been going on for months and is increasingly affecting companies and consumers in both countries. Capital spoke to Wan-Hsin Liu, China expert at the Kiel Institute for the World Economy (IfW), about the effects and prospects.
Capital: How much is China's economy suffering from the trade war with the US?
WAN-HSIN LIU: Basically, it is not in China's interest to have a trade dispute with the US. But as soon as the stability of the economy is threatened, the Chinese government will do everything in its power to prevent it. Even if that means fighting a power struggle with the USA. China's goal is not to win against Trump. The focus is on stable economic development. The growth rate of the gross domestic product was 6.4 percent in the first quarter. It is in line with the positive expectations of the Chinese government. Trump's tariff hikes have not and will not have caused drastic damage to China's economy.
And how long can China allow this simmering dispute?
China is definitely able to drag out the negotiations, even if that is not the goal. The top priority is to find a compromise without violating your own interests and basic principles. And as long as there is no agreement in sight, both sides will take further measures. That is why the Chinese government is reacting with counter-tariffs. They try to compensate for possible negative consequences for the country. China is hoping for a satisfactory result at the G20 summit in June so that unnecessary tensions can finally subside.
Ultimately, Trump is calling for nothing less than a restructuring of the Chinese economy - how far can the Chinese government make concessions here?
Trump calls for the market to be opened - but this is not a new requirement for China. The government has been working to open up the market for a few years and is making progress. Only they are not as radical as Trump would like them to be. The demand to distance himself from the state economy will also cost Trump a lot of patience. Because China rules with only one party - the Communist Party. Central economic decisions are made by the leadership of this party. Market economy aspects are allowed more and more, but a radical change in the state government cannot be expected. China cannot be dictated to which reform goals should be implemented and how quickly.
Who has the greater leverage in disputes in terms of economic strength?
The art of negotiation decides who has the upper hand. Nevertheless, one has to keep in mind that both countries are following their respective agendas, which influences the trade conflict: Trump is mainly focusing on his possible re-election in 2020. Therefore, decisions with positive effects are indispensable for the US. In addition, there is a certain time pressure, since not only China, but also more and more American entrepreneurs and consumers have to pay the high tariffs. That should be reason enough not to want to delay the negotiations any further. China, on the other hand, fears an unstable economy. It would jeopardize political stability and, accordingly, the position of the communist party. In response, the Chinese government is adopting a passive stance so as not to escalate the dispute. True to the motto "strength lies in calm", the Chinese government tries not to reveal too many details of its strategy - in contrast to Trump, who expresses his affinity for social media on a daily basis.
If there is a deal, what is the probability that China will stick to the deal?
Whether the Chinese government will stick to the principles of a possible deal depends entirely on how tolerant Trump's demands are. China will pay close attention to details and niches of the deal and is ready to delay negotiations until every paragraph is satisfactorily worded. Predefined periods of time will also influence compliance with the agreements. The more time the US gives the Chinese government to meet individual requirements, the higher the likelihood that China will adhere to the requirements. However, should Trump demand quantitative targets at an exact point in time, it cannot be ruled out that China will circumvent the agreements.
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