China Hardened Trade Stance as Negotiations Entered Final Phase

Chinese negotiators emboldened by mistaken perception U.S. was willing to compromise. The new hard line taken by China in trade talks—surprising the White House and threatening to derail negotiations—came after Beijing interpreted recent statements and actions by President Trump as a sign the U.S. was ready to make concessions, said people familiar with the thinking of the Chinese side.

The hardened battle lines were prompted by Beijing’s decision to take a more aggressive stance in negotiations, according to the people following the talks. They said Beijing was emboldened by the perception that the U.S. was ready to compromise.

In particular, these people said, Mr. Trump’s hectoring of Federal Reserve Chairman Jerome Powell to cut interest rates was seen in Beijing as evidence that the president thought the U.S. economy was more fragile than he claimed.

Beijing was further encouraged by Mr. Trump’s frequent claim of friendship with Chinese President Xi Jinping and by Mr. Trump’s praise for Chinese Vice Premier Liu He for pledging to buy more U.S. soybeans.

“Why would you be constantly asking the Fed to lower rates if your economy is not turning weak,” said Mei Xinyu, an analyst at a think tank affiliated with China’s Commerce Ministry. If the U.S.’s resolve was weakening, the thinking in Beijing went, the U.S. would be more willing to cut a deal, even if Beijing hardened its positions.

That assessment, however, flies in the face of a strong U.S. economy. Gross domestic product in the first quarter rebounded from the end of 2018, with growth clocking in at a seasonally adjusted annualized rate of 3.2%, up from 2.2% the prior quarter. The jobs report for April, released on Friday, showed the unemployment rate falling to 3.6%, the lowest in nearly 50 years.

China’s generally improving economic picture gave Beijing more confidence in trade talks, as did a recent conference on the country’s vast infrastructure-spending program, called the Belt and Road Initiative, which was attended by about 40 heads of government and state.

Chinese leaders saw the conference turnout “as China has more leverage to improve relations with other countries and with the U.S. business community,” said Brookings Institution China specialist Cheng Li. “It made them play hardball.”

If China misread the signals—and vice versa—it wouldn’t be the first time.

Sources:

https://www.wsj.com/articles/why-china-decided-to-play-hardball-in-trade-talks-11557358715

 

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