Beijing prefers to negotiate, but is preparing for a trade battle

Beijing. As Donald Trump ramps up tariff threats against China, Beijing is trying to get ahead of the next US president with its own restrictions to bring Washington to the negotiating table before a full-blown trade war, analysts say.

Armed with lessons from the latest tariff battle during Trump’s first term, China is trying to gather negotiating chips to start talks with a new US administration on contentious aspects of bilateral ties, including science and technology. Additionally, it worries about the detrimental effects of more tariffs on its already fragile economy.

This week, China opened an investigation against US chip giant Nvidia for what it sees as alleged violations of antitrust rules, after it banned exports of rare minerals to the United States.

We need to see this as the opening bid in what is likely to ultimately become a negotiation with the United States, rather than simply imposing tariffs and leaving no one left to talk.explained Fred Neumann, chief Asia economist at HSBC.

China is better prepared to deal with almost any tariff, if there is no one apocalyptic announcement of a 60 percent tariff on all Chinese goods, said George Magnus, a research associate at Oxford University’s China Centre.

The world’s second-largest economy now dominates sectors such as electric vehicles and green energy, and has less need for the Boeing planes and large gasoline cars it bought in 2017, having found substitutes such as Airbus and its own Comac C919. However, China is still far from being self-sufficient.

Trump has promised additional 10 percent tariffs on Chinese goods to pressure Beijing to do more to stop fentanyl flows to the United States.

A new trade war with the world’s largest economy would hurt China further, analysts say, as Washington could impose increasing tariffs on its products and further squeeze China out of its supply chains.

China still needs to import strategic materials, such as advanced microchips and other high-tech equipment, and is counting on American consumers to buy its products, given increasingly pessimistic global trade prospects and weak demand from its own citizens.

However, this time, China has new elements to offer, such as increasing purchases of oil and liquefied natural gas, as the United States pumps more than it consumes. Given increasing restrictions on chip exports, agricultural products, raw materials and energy are some of the items the United States can still sell to China, said Bo Zhengyuan, a Shanghai-based partner at consulting firm Plenum.

Technological cooperation agreement renewed

China and the United States renewed a scientific and technological cooperation agreement for five years on Friday despite criticism from various sectors, including Republicans, who maintain that this pact benefits Beijing.

The signing of the extension of the agreement is part of the efforts of both administrations to stabilize relations before January 20, when Donald Trump, who has threatened to expand tariffs on Chinese imports, assumes the presidency of the United States.

The agreement, first signed in 1979, had been renewed every five years, even Trump did so during his first term. It only stopped expanding last year.