Donald Trump’s trade war and Huawei ban push China to rethink economic ties with US
- Last week the US president signed an order that could restrict Chinese telecommunications companies from selling their equipment in the United States
- Talks to end the year-long trade war fell apart last month after the US increased tariffs on all Chinese goods, with Beijing responding with increases of their own
The decision by the United States to impose tariffs on all Chinese products and put smartphone maker Huawei on a trade blacklist that could choke off vital components has severely damaged the fragile trust between the two countries, forcing China to re-examine the entire bilateral economic relationship to protect itself, according to Chinese researchers.
China is still open to resuming talks to end the trade war and refuses to believe that a “decoupling” of the world’s two largest economies is well underway. But government advisers are now highlighting the risk of sourcing critical supplies from an increasingly hostile US, particularly after the decision last week to put Huawei and its affiliates on a trade ban list, and are exploring ways for the country to cut its exposure to the US.
Trade in natural gas was once viewed by Beijing as an area where ties could easily be improved, since the US has significant reserves to sell and China’s demand for the clean energy source has surged. When US President Donald Trump visited Beijing in 2017, one of the biggest deals agreed was Chinese funding for a natural gas project in Alaska worth US$43 billion.
However, the idea that China should buy large amounts of natural gas from the US must be revisited, Wang Yongzhong, a senior fellow with the Chinese Academy of Social Sciences, a governmental think tank, said on Monday.
“China may have to cap US supplies at 10 or 15 per cent of its overseas purchases for the sake of supply chain security,” said Wang, who specialises in China’s energy supply security. “What if the [energy] supply [including both liquefied natural gas and crude oil] is cut off suddenly, as we have seen in the Huawei case?”
China’s current reliance on US energy products is limited as it bought only US$6.3 billion worth of American crude oil and liquefied natural gas in 2017, a mere 3.6 per cent of the country’s purchases of foreign energy products. The US accounted for about 4 per cent of China’s total imports of liquefied natural gas in 2017.
The escalation of US trade tariffs and the Huawei blacklisting have also reinforced Beijing’s long-standing belief that it has to rely on itself for key technologies and resources.
The trade war, as seen from the current situation, should be a long-term issue. To fight the trade war, China must boost its domestic market demand.
Huawei is checking with its non-US suppliers to verify whether they are still able to work with the company under the ban, and its wholly owned chip unit has said it is activating its backup plan to ensure a continuous supply.
The telecommunications equipment maker is also developing its own operating systems for smartphones and computers after Google has suspended some Android services under the ban.
The view that China has to adapt to a new harsher reality is widely shared among Chinese academics, policymakers and even the general public on the assumption that the US-China rivalry will continue and intensify.
China’s official media outlets are engaging in a nationalistic outpouring against the US, telling the public that the trade talks collapsed because the US was trying to bully China but that it refused to be humiliated.
Jin Canrong, an international relations professor with Renmin University of China, said in an interview with a Chinese website, Guancha.cn, that the endgame of Washington’s hawks is to “force China to give up its development” instead of seeking balanced bilateral trade.
Mei Xinyu, a fellow at the research institute under the Ministry of Commerce, said the current trade talk deadlock was similar to the Panmunjom peace talks during the Korean war in the 1950s.
“Even if a deal is reached, it could be torn apart [by Trump] easily at any time,” he said.
Beijing should prepare for the worst-case scenario to defend its rights in climbing up the global value chain through technological catch-up, Mei added.
“The trade war, as seen from the current situation, will be a long-term issue,” Zhang Yongjun, a senior economist of the China Centre for International Economic Exchanges, said last weekend. “To fight the trade war, China must boost its domestic market demand.”
