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How China Really Sees the Trade War

Xi Still Believes He Has the Upper Hand

Xi and Trump about to shake hands after making joint statements at the Great Hall of the People in Beijing, November 2017 Damir Sagolj / REUTERS

When Presidents Xi Jinping and Donald Trump meet on the margins of the G-20 summit in Osaka later this week to seek a trade deal, Xi is likely to soften the customary formality of Chinese diplomacy by calling the U.S. president “my friend.” Beneath the cordial surface, however, Xi will yield nothing. Trump must then decide whether to accept the Chinese offer that has been on the table ever since early 2017 and end the trade war or to allow the U.S. and Chinese economies to drift further toward decoupling.

“We’re going to win either way,” Trump likes to say. But according to two Chinese colleagues who contributed to this article but cannot attach their names, Beijing policymakers believe he is either misinformed or bluffing.

CHINA'S BOTTOM LINE

The basic Chinese position on the trade war has not changed since 2017. Under its proposal, China would buy more U.S. products in an effort to narrow the trade deficit, and it would reaffirm its long-standing commitment to the legal protection of intellectual property rights. But if foreign firms voluntarily decide to share trade secrets with Chinese firms in order to gain access to the Chinese market—a practice the United States characterizes as “coercive transfer”—China would do nothing to interfere. China would continue on its established trajectory of opening its market to foreign banks and businesses, but it would not accelerate the pace of opening. Its currency would remain pegged to a basket of foreign currencies, and Beijing would not artificially deflate it, since China sees no benefit to a currency war. The Chinese government has already lowered the volume of propaganda about its Made in China 2025 program, which pushes for Chinese dominance of modern technologies such as robotics and artificial intelligence. But it is not willing to ramp down the research and development projects that form the substance of that program. In short, China has offered to change nothing structural in its development model, but it is willing to grant Trump

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