Trade dispute with US a political challenge for China’s Xi

The tariff war between Washington and Beijing poses one of the biggest challenges yet for Chinese President Xi Jinping, potentially exposing his political vulnerabilities at a time when the Chinese economy is already slowing.

The U.S. effort to win concessions from China on strategic industrial policies has put Xi’s own prestige on the line. It also has cast into question the ruling Communist Party’s social contract with the Chinese people: keeping authoritarian, one-party rule and ruling class privileges in exchange for delivering robust economic growth, better living standards and a higher global profile for China.

Chinese and U.S. officials were due to resume talks in Washington early today [Macau time] on the dispute over Beijing’s technology ambitions in meetings overshadowed by President Donald Trump’s threat to raise tariffs further as of today.

Xi needs to balance standing firm against U.S. pressure with the increasing urgency to reach a deal that would relieve battered exporters who have long underpinned growth and job creation, particularly outside the major cities.

“Xi Jinping is under a lot of pressure. If he is seen as succumbing to the threats, then he will be seen as weak and failing to stand up to the Americans,” said Willy Lam, a Chinese politics expert at the Chinese University of Hong Kong.

The stakes are high.

A failure to reach agreement in this week’s talks, the 11th round of negotiations so far, would be “deeply embarrassing and somewhat damaging,” for Xi, said Steve Tsang, director of the China Institute at London’s School of Oriental and African Studies.

It would not be catastrophic, he said. However, “it would be a different story if a sustained and escalating trade war puts the Chinese economy in a tailspin and keeps it down over a year or two.”

Sometimes referred to as the “chairman of everything,” Xi is widely regarded as China’s most powerful leader in decades. He cleared a path to remaining in office indefinitely last year when he amended the constitution to remove presidential term limits. He also has led a sweeping crackdown on corruption that netted several high-profile targets while fortifying the party’s presence at all levels.

Xi’s signature foreign policy strategy, the trillion-dollar Belt and Road infrastructure initiative, has racked up notable successes despite complaints that it saddles participating countries with unsustainable levels of debt.

He also has led a major expansion of China’s military while adopting a more confrontational approach to relations with the U.S., Taiwan and countries with rival claims to territory in the South China Sea. That’s raised expectations among a highly nationalistic public and party and military hardliners that Xi will stand up to the U.S. in the tariff conflict and others likely to follow.

China’s aggressive efforts to gain dominance in areas such as robotics and artificial intelligence lie at the heart of the dispute with the Trump administration, which highlights complaints by companies and governments over the forced transfer, or outright theft, of cutting-edge technology.

Underlying Xi’s great power is a sense of insecurity, reflected in the elaborate protective measures he deploys and massive spending on domestic security that exceeds even the defense budget, Tsang said.

There is also great unease over the economy, which expanded at an annual rate of 6.4% in January-March, matching the previous quarter for the weakest growth since 2009.

Xi “must be acutely aware that his domestic critics hold him responsible for lack of success in the talks,” June Teufel Dreyer, an expert on Chinese politics who teaches political science at the University of Miami.

“His actions indicate that he fears dissent from the chattering classes, and social instability from the rest,” Dreyer said.

Perceptions of Xi’s leadership and his advisers’ handling of the trade dispute were not helped by a tweet by Trump on Sunday expressing frustration at the pace of the trade talks and vowing to raise tariffs on $200 billion in Chinese products from 10% to 25%, and apply the tariffs to just about everything the U.S. imports from China.

China’s Commerce Ministry said yesterday that Beijing would retaliate.

Early in Trump’s presidency, Xi appeared adept at handling his American counterpart. That tweet appeared to catch him off-balance.

“Now it appears that there is no clear policy response to Trump on the trade war, and that China seems on the back foot,” said Rana Mitter, a China politics and history expert at the University of Oxford. “That may open up more space for other figures at the top to make it clear that their views still matter,” which could in turn, could restrict Xi’s ability to rule as a “single, dominant voice,” Mitter said.

Xi faces time pressures from the party’s inner dynamics. He is expected to call a meeting of the powerful Central Committee by October at the latest, and needs to show he has the trade dispute well in hand. Informal summer meetings among officials at the Beidaihe seaside resort could also test of Xi’s leadership on the matter, Lam said.

Such sensitivities appear to be affecting how officials publicly discuss the dispute.

During earlier rounds of talks, officials went on the offensive, blaming the U.S. for creating tensions and disrupting global trade. Recently, the tone has been more muted, part of a pattern of clamping down on politically sensitive discussions that “suggests a desire to batten down the hatches,” Mitter said. Christopher Bodeen, Beijing, AP