Trump is putting China in an impossible situation. I fear that Chinese pride, due Trumps particular choice of rhetoric, will be making it very difficult for China to navigate the situation in a face saving way. Why am I worried? Well, I think pride did get in the way before.
Looking back at the pandemic. Most of Asia handled the pandemic much better and China hardly had any lives vs livelihood tradeoff for the part of the pandemic without a vaccination in sight.
Why was China so effective? It is ultimately down to the different informational boundaries of the state, social norms and a crazy clampdown, which enabled China to “outperform” in particular during the first COVID19 wave. I think despite the clampdown, the public did broadly accept the measures then as it simply made sense, since many things were unknown about the virus at the time (maximal uncertainty).
But Chinese pride prevented it from having much less deadlier waves later in 2020 and in 2021 as China did not resort to the Western vaccination but insisted on its domestic one. This is, of course, an interpretation.
But we may be now in for a similar situation where Chinese pride gets tested. Trump’s rhetoric around the 90 day break is not motivated by the financial turmoil (rather, I think this is the objective), but it is framed as the other countries come begging and on their knees, allowing the US “to do as they please”. This is a frontal assault and China would probably not want to be seen as “kissing Trump’s ass”.
A head of state that puts China on the spot for having pursued an export led growth model. Of course, it is true that the Chinese domestic market is pretty much closed to services – which is an area that the US excels at. It is also true that there are issues with regards to a level playing field, but it is ridiculous to not be amazed by what China accomplished in a short period of time.
But the global trading system is ill equipped to handle trade in services as it is far to easy to shelter income from services in tax havens. The global system of taxation has been developed with trade in goods in mind, not with services.
If there is any dealmaking, Trump’s confrontational approach may result in other countries to be indirectly recruited to single out China’s massive trade surplus in goods.
The systematic erosion of US soft power may well bring about a radical shift in the global trading system where financial flows have encouraged a structural concentration in services and a de-facto deindustrialization that may have been now identified as an area of weakness vis-à-vis China as an emerging global superpower.