China warned to prepare for lengthy trade war with US

China warned to prepare for lengthy trade war with US

Beijing should prepare for extended conflict with Washington, because their fundamental differences cannot be resolved in a brief meeting of top leaders, a government adviser has warned, The South China Morning Post.

“We shouldn’t and can’t accept the US imposed terms for a ‘ceasefire’. The trade war won’t end in two or three years and we should make long-term mental preparations,” Pei Changhong, former director of the Institute of Economics at the Chinese Academy of Social Sciences, a government think tank, said on Thursday.

US President Donald Trump is using the trade war as a tool to blackmail China for economic concessions, but the fundamental US strategy is to contain China, he argued.

“Suppressing potential rivals is a political tradition in the US, no matter who is in office,” Pei, a member of China’s top political advisory body, wrote in an article posted online.

The warning, made just two days before Chinese President Xi Jinping and Trump meet after the G20 summit in Argentina, comes amid expectations that the two leaders will be able to reach an agreement to avoid an escalation of the trade conflict, at least temporarily.

But relations between the world’s two largest economies will remain difficult in the years ahead, complicating China’s economic development, Pei predicted.

“The previous strategic development period was largely based on the misjudgment of the United States and other Western countries.

Now that they have woken up, there will be no more incentives [to adopt Western ways] offered in the future,” Pei pointed out.

The reform and opening up initiative started by late paramount leader Deng Xiaoping successfully transformed China from a poor agricultural country into the world’s top exporter and the second largest economy.

Its economic transition, spurred by its entry into the World Trade Organisation in 2001, was largely supported by Washington until recently.

Washington’s U-turn attitude came after the US decided that China was a threat both economic and strategically, arguing that China had taken advantage of global free-trade rules.

The US is, in essence, demanding that China give up its government-led growth model and political system, Pei said.

According to Pei, China is moving forward with market-oriented reforms but it will not adopt the same economic system as the US.

It has already achieved considerable progress in building a market economy and opening up its market, Pei said.

“The problem is that everyone uses US standards to measure [progress]… The US always uses its own values and standards to judge others. Isn’t that typical of chauvinism and hegemony?”

Despite Beijing having announced a series of market opening measures earlier this year and repeating its pledge to enact further reforms, Pei said those steps were based on China’s own needs and were not the result of foreign pressure.

“China has its own timetable and road map,” he said.

The government researcher said time is on China’s side, given its political system and its huge consumer market.

“China won’t be defeated because it’s not the Soviet Union. China is not Japan either and it won’t accept the Plaza Agreement,” he said – a reference to the 1985 currency accord among developed nations to depreciate the US dollar against the Japanese yen and Deutschmark, which many analysts argue was a major contributing factor to Japan’s economic stagnation in subsequent years.

Chinese growth slowed in the third quarter to its lowest rate in nearly 10 years. In the Politburo’s meeting at the end of July, policymakers shifted the government’s priorities in favour of stabilising growth through additional fiscal spending and monetary policy easing.

Economic sentiment data released earlier Friday suggested growth had continued to slow in the fourth quarter.

And most analysts expect the economy to take a bigger hit in the first half of next year as US tariffs take full effect.

While encouraging the government to take the initiative to participate in global economic governance improvement and to continue expanding the Belt and Road Initiative, Pei also urged policymakers to take further action to reduce the effect of the trade war in the short-term.

For instance, he suggested the government set up a quota system on soybean imports since China’s reliance on the US product cannot be changed in the short term.

The government should also help Chinese exporters to set up offshore entities to bypass US tariffs and so prevent a loss of market share.

And to help the country gain access to new technology, Beijing should encourage manufacturing investment in developed countries, he added.

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