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Trump’s trade war just fine with Xi

By Michael Schuman / BloombergAnyone who expects China to concede defeat in its trade war with the United States should read about Biobase Group.

The Chinese manufacturer of laboratory equipment once struggled to win orders even at home in an industry dominated by foreign products. But the company’s prospects have brightened as the trade war prompts customers to turn to domestic alternatives.

“The local market was heavily reliant on imports,” Biobase’s chairman was quoted as saying. “Now, it’s different. Opportunities beckon.”

The story is from the state-run China Daily, so take it with a trailer-truck-sized grain of salt. But it makes an important point: The Chinese government is happy when its citizens buy locally made instead of American products.

Of the many misperceptions driving U.S. President Donald Trump’s trade policy, this may be the most dangerous: China isn’t desperate to maintain its interdependent relationship with the United States. Rather, it’s a national objective to become more economically independent.

That’s a quite different China than the one in Trump’s imagination. To the White House, the country is still so reliant on the United States for growth and jobs that its leadership can be pounded into submission with tariffs. It’s only a question of when Chinese President Xi Jinping comes begging for mercy.

In real life, Trump’s tariffs are unlikely to inflict enough pain on China to compel Xi to make concessions. Its huge domestic market is becoming more important to Chinese growth. But beyond even that, Beijing’s entire economic strategy is designed to replace critical foreign technology and products with homegrown alternatives it can control. Simply, the Communist Party prefers Chinese to buy Xiaomi phones and Geely cars, not iPhones and Buicks.

That’s exactly what the much-feared “Made in China 2025” program is all about. The plan is to develop new, high-tech industries to compete with and eventually replace foreign rivals, at home and abroad. In that sense, it’s official policy to limit overseas involvement in the economy.

The trade war, therefore, comes as a “blessing in disguise,” as the China Daily put it. Trump’s trade sanctions have given Beijing another excuse to drag its feet on free-market reforms, to support local companies and to harass and exclude foreign business — all things Chinese leaders are inclined to do anyway.

If anything, Trump’s tactics have only reinforced the critical importance of this quest for greater independence. Take the ZTE Corp. kerfuffle. After the Chinese telecom giant violated U.S. law, Washington almost forced the company out of business by banning U.S. suppliers from selling it crucial components. Eventually, a settlement was reached.

The Chinese learned their lesson — just not the one Washington intended. Rather than scaring Beijing into cooperating on trade, the incident reinforced how badly the country needs its own technology. “We [should] hold innovative development tightly in our own hands,” Xi said amid the ZTE troubles.

Even more, China’s economic program is aimed at developing export markets other than the United States. The China Daily was sure to mention how the Biobase chairman had a map in his office marking countries participating in Xi’s pet infrastructure-building program, the Belt and Road Initiative.

The goal of that plan is to entrench the country in new developing economies in order to expand the role of Chinese business. In this way, Beijing is striving to create its own economic bloc.

None of this means Beijing won’t negotiate a trade deal with Trump. Nor does Beijing’s policy make sense from a purely economic perspective. Chinese growth prospects would be better served by further integration and cooperation with the United States, to maintain access to American consumers and technology. And since momentum in China’s economy already appears to be weakening, it can ill afford the added headwinds created by slowing world trade.

But Beijing sees its development plan as critical for national security and the country’s rise on the world stage. There’s no place in this great mission for Intel Corp., Apple Inc. or General Motors Co. That means Xi may be in less of a hurry to seek a trade deal than Trump assumes, and will only conclude one that doesn’t endanger his broader economic agenda.

The bottom line is that China is content to go its own way on its own terms. Without Trump and the United States.Speech

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