Trade war, day 68: ‘The risk of China and the US sliding into a new cold war is increasing’

The Financial Times has the latest must-read article (paywall) to understand the trade war, the key point of which is:

After a period when Mr Trump picked trade fights with any number of countries, Beijing worries that he has stumbled on to a more effective trade strategy that involves isolating China.

Officials in Beijing privately say, the FT reports, that they “could not believe their luck when the US president this year simultaneously initiated trade actions against China, the EU, Canada, Mexico, Japan and South Korea.” But in recent weeks, it has become increasingly clear that the a multilateral strategy to put pressure on China’s particular model of “state capitalism” is forming. Among those signals, reported by the FT and others:

• On August 23, an “unusual trilateral forum” in Washington, D.C., between the U.S., EU, and Japan, was held to discuss unfair trade practices of unspecified “third countries,” but which was almost certainly focused on China, the FT writes.
• On August 29, Steve Mnuchin, the U.S. Treasury Secretary, confirmed that the Trump administration had finally prioritized its trade battles: Mexico and Canada first, then the EU, and then China.
• As those issues with closer trading partners get worked out, the likelihood of tensions with China easing is going down, the Wall Street Journal wrote (paywall) on September 7.
• The new U.S. ambassador to the EU, Gordon Sondland, called for the “transatlantic relationship to be a force that curtails Chinese economic aggression and unfair trade practices,” Reuters reported.
• Even Japan, who the Financial Times has previously pointed out (paywall) has remarkably warmed to China in recent months, seems willing to join forces with the U.S. against China: “China wants us to join their straightforward criticism of Trump’s trade policies, which we are of course very concerned about…But we are also basically in total agreement with Trump’s viewpoints regarding market access and other [trade and investment] issues in China,” one Japanese official said.

“An increasing number of officials and analysts in Beijing” see “the escalating trade war as just the leading edge of a larger effort by the US to ‘contain’ China,” the Financial Times concludes.

• “The risk of China and the US sliding into a new cold war is increasing,” Tu Xinquan, a professor at Beijing’s University of International Business and Economics, said.
• “Both the Republican and Democratic parties have reached a consensus that they should try to curb China’s development,” another scholar in Beijing, Wang Chong of the Charhar Institute, added.
• The Financial Times also points to “a series of authoritative articles in party-controlled publications,” where officials have “warned that the country faces a new era of ‘strategic containment’ orchestrated by the US.”
• For more on those articles — the latest one is here (in Chinese) — see today’s Sinocism (paywall).

If the confrontation continues to escalate, Beijing has apparently identified an ally in Moscow:

• “Russia and China have vowed to stand together and fight Donald Trump’s attacks on their economies as Xi Jinping and Vladimir Putin sought to deepen their new-found strategic friendship,” is how Financial Times summarized the results of a high-level summit in Vladivostok.
• At the same time, “in Siberia, more than 3,000 Chinese troops joined Russian soldiers for the country’s biggest military drills since the Soviet era,” which the Washington Post says is “the first time that Moscow has integrated Chinese forces into its annual strategic exercises typically reserved for Russia’s closest allies.”
• The two countries will continue to see a “substantial improvement” in ties as tariffs make China “look at other markets and to diversify our trade and business relationships,” former People’s Bank of China director Zhou Xiaochuan told CNBC today.

More trade war news:

• WTO
  China seeks World Trade Organisation backing for US$7 billion sanctions on United States over dumping duties / South China Morning Post
• Undelivered airplanes
  Boeing 737 deliveries jump as unfinished jets pile up at factory / Investor’s Business Daily
• Chinese economy
  The trade war will likely cost China 700,000 jobs, JPMorgan says / Bloomberg (paywall)
  China auto sales slump on Trade tensions, economic jitters / WSJ (paywall)
  “Vehicle sales fell 3.8% to 2.1 million last month, the government-backed China Association of Automobile Manufacturers said on Tuesday.”
  China Inc. is hurting for a tax cut / Bloomberg (paywall)
  Shuli Ren points out that “China’s effective corporate levy is 67.3 percent, the world’s 12th highest, according to the World Bank,” even as “the trade conflict with the U.S. is starting to show up in earnings.”
  China’s factory base cuts business costs, rolls out red carpet to foreign investors as trade war bites / SCMP
  Trump’s trade war with China just sent Hong Kong into a bear market / Motley Fool
• Cheng Li discusses on-the-ground politics of both sides
  Despite spiralling trade war, China likely to be a non-factor for US voters in midterm elections / South China Morning Post
  “The consequence of midterm elections is important – its implications on America’s domestic politics are clear and predictable. But its impact on US-China relations is too difficult and too early to assess,” said Cheng Li, a China expert at the Brookings Institution.
  How China’s middle class views the trade war / Foreign Affairs (paywall)
  Cheng Li writes, “Over the past few months, members of China’s middle class have been noticeably critical—especially in online public discourse—of the Chinese government’s economic and sociopolitical policies, including the way the leadership has handled relations with the United States.”
  But “a severe escalation in the trade war could result in a sudden shift of blame to Washington.”

Previously in The China Project’s trade war coverage:

Trade war, day 63: Chaos in D.C. deepens trenches even further