For the Chinese, Trade War Success is a Matter of Pride

The trade war between the United States and China is heating up. Back in May, the Trump administration raised tariffs on $200 billion worth of Chinese imports, claiming that backtracking on the Chinese side had led to a standstill in trade negotiations. The Chinese Ministry of Finance responded the following week by raising tariffs on $60 billion of US imports. The US responded in June by threatening to hit an additional $300 billion of Chinese goods with tariffs before President Donald Trump said he would first seek to negotiate directly, but US and foreign companies alike are now getting antsy as talks appear to have stalled.

President Donald Trump has been relatively clear about what he wants out of this trade war: to narrow the gaping US trade deficit with China and to remove barriers to US companies doing business there. But what does China want?

After trade talks in Washington stalled and Trump imposed higher tariffs on May 10, lead Chinese trade negotiator Vice Premier Liu He gave an interview with Hong Kong’s Phoenix Television that revealed for the first time the areas of conflict that Beijing hopes to resolve in future trade talks. Liu highlighted the importance of a deal that removes all tariffs and that reconciles the two countries’ differing views about how much China should purchase from the US in order to narrow the trade deficit.  He also made two references to achieving a deal that will uphold the “dignity” of both sides.

In other words, China wants a deal that ensures its continued economic growth, as well as a smoother trading relationship with the United States. But in addition to that, China wants the respect that it feels it deserves.

During his interview, Vice Premier Liu stated, “From the Chinese point of view, we want a deal that is based upon good cooperation under a precondition of equality and dignity. I hope our American counterparts can understand this point.”

Others back in China have stated the point more bluntly. On May 6, Taoran Notes, a social media account associated with China’s state-run Economic Daily, published a commentary before these most recent talks began, warning: “Don’t think that we will give in” on matters that would hurt China’s interests. “The premise of negotiations is mutual respect, equality, and mutual benefit,” Taoran Notes continued, adding that there was no change in China’s “attitude of firmly safeguarding the country’s dignity and core interests.”

Threats to Chinese dignity have not been taken lightly by the Chinese media, which appears hell-bent on mobilizing popular sentiment. A wave of nationalistic propaganda has swept over China, capturing the attention of Chinese netizens. A clip of the May 13 7 pm broadcast of CCTV News went viral, garnering several billion views. In it, anchor Kang Hui remarks: “As President Xi Jinping pointed out, the Chinese economy is a sea, not a small pond. A rainstorm can destroy a small pond, but it cannot harm the sea. After numerous storms, the sea is still there!” A fiery editorial published by China’s state-run Xinhua news service and People’s Daily newspaper adds that “The entire country and all the people of China are being threatened. For us, this is a real ‘people’s war.’”

The upshot here is that image is important to Xi and the Chinese state. It is important to maintaining legitimacy in the eyes of 1.4 billion citizens all hoping to see continued prospects for greater economic prosperity, and it also matters to a state in the midst of a sweeping campaign to forge stronger trade ties throughout much of the world.

Given all this, here a few words of advice for the Trump administration on “The Art of the (China) Deal.” First, strongly worded tweets will only play into the hands of those in China seeking to rally a nationalistic response. Quiet, earnest attempts at private diplomacy will be the key to a solid deal.

Second, Xi will not sign a trade deal if there is even a small chance that the deal will fall through. Even as early as March, those close to the Chinese delegation spoke of China’s unease with the possibility of looking weak in negotiations, and of Xi’s unwillingness to be embarrassed by an inconclusive summit. To avoid a repeat of Trump’s failed summit with North Korean leader Kim Jong Un in February, negotiators will want to be sure to work through some of the finer points – including guidelines on how to deal with sensitive issues like international property rights and forced technology transfers – before bringing the two heads of state together.

The appearance of strength at the conclusion of the trade war is a matter of pride for China’s leadership, and the most recent tariffs have only stoked the nationalist fire fueling Xi’s resistance to an agreement on Washington’s terms. This should come as no surprise to Trump, who values his image with equal fervor. If the US and China are to reach a successful conclusion, there must be a way for both sides to walk away from the trade deal looking strong.