High-Stakes Trade War: A Delicate Dance Between Trump and Xi

A Risky Game of Chicken

The trade war between US President Donald Trump and Chinese President Xi Jinping is escalating, despite conciliatory gestures from Trump. Xi, facing a vulnerable Chinese economy, is in a precarious position. China's recent tariff increase to 125% on US imports, a response to Trump's 145% hike, demonstrates Xi's unwillingness to yield. However, by stopping short of matching Trump's tariff and signaling a reluctance to further escalate, Xi is proceeding with caution.

Trump's Calculated Overture

Amidst the escalating tensions, Trump has expressed optimism about reaching a mutually beneficial agreement. His public praise of Xi as a "friend" and "one of the smartest people in the world," coupled with suggestions of a potential phone call restarting negotiations, paints a picture of calculated friendliness. Trump's strategy seems to be enticing Xi to negotiate from a position of perceived weakness.

"It is a negotiation," Trump stated. "You have to have flexibility." This statement underscores his tactical approach to the trade war.

Xi's Balancing Act

Xi, in his first public response to Trump's tariffs, warned against a trade war, emphasizing that there are no winners. He highlighted China's self-reliance and resilience, stating, “No matter how the external environment shifts, China will maintain its resolve." His message, delivered during a meeting with Spanish Prime Minister Pedro Sanchez, implicitly called out the US and hinted at forming coalitions against unilateral economic actions. Xi is striving to project strength and build international support, despite China's economic vulnerability.

The Perils of Prolonged Conflict

Trump acknowledged the "transition cost" of his tariff policy, indicating an awareness of potential domestic repercussions. He seems to be betting on Xi initiating contact to strike a deal. However, China expert Gordon Chang suggests that Xi’s political position within the Chinese Communist Party restricts him from appearing to concede to Trump, even if economically beneficial. “Picking up the phone and calling President Trump would be the economically rational thing to do,” Chang noted, highlighting the internal pressures Xi faces.

Scott Kenney, a senior advisor at the Center for Strategic and International Studies, observed, "I think the Chinese will read this as weakness from President Trump and they will wait." This suggests that China might be misinterpreting Trump's tactics.

A High-Stakes Standoff

Neil Thomas, a fellow at the Asia Society Policy Institute, believes Xi is gambling that China can endure the economic strain longer than the US. “For Xi, there’s a huge amount of risk of looking weak in his dealings with the U.S.” Thomas pointed out. This reinforces the notion that the trade war is as much about political posturing as it is about economic realities.

The Path Forward

The trade war's continuation poses significant risks for both nations. The US could experience rising prices, business closures, job losses, and a potential recession. China, already grappling with economic challenges, faces further instability and potential internal dissent against Xi's leadership. Both leaders understand the destructive potential of this conflict, suggesting that the game of chicken cannot continue indefinitely.

While Trump has signaled a degree of moderation and extended friendly overtures, Xi has indicated a reluctance to further escalate tariffs. The future of this high-stakes standoff remains uncertain, with both leaders carefully calculating their next moves.