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If China hits back

Good morning.

This week brought a flurry of anguished reports that China is readying options to strike back against the United States if President Trump makes good on his vow to slap trade penalties on China as punishment for alleged intellectual property theft.

On Sunday, China’s commerce ministry announced an investigation into whether about $1 billion of US sorghum exports to China were dumped or subsidized, a move the New York Times described as “the latest salvo in an escalating trade dispute between the world’s two largest economies.” Days later Bloomberg said China is looking at trade restrictions on soybeans imported from the US, valued last year at $13.9 billion. Wired reports that US tech companies, too, are worried they’ll get caught in the crossfire of a US-China trade fight.

The handwringing may be overdone. Financial Times correspondent Tom Mitchell argues that, in targeting sorghum, an animal feed, Beijing is signaling its “desire to contain bilateral trade disputes to relatively narrow sectors.” Mitchell notes that the measure was a painless one for Beijing because sorghum is a small part of the feed market; if push came to shove, Chinese farmers could easily switch to corn. China, he suggests, would be far more reluctant to raise the stakes by curtailing soy beans because doing so would likely cause as much pain in China as in the US.

Chad Brown, senior fellow at the Peterson Institute for International Economics in Washington, notes that Trump’s two predecessors also talked tough on China and imposed tariffs shortly after entering office, only to back away from conflict later to minimize economic damage to both nations.

Still there are signs aplenty that this time, the two giants are heading for a mutually destructive showdown. US trade representative Robert Lighthizer lit the fuse on trade last August by announcing a Section 301 investigation into whether China’s intellectual property policies harm US businesses.

In the months since, Congress has pressured AT&T and Verizon to abandon plans to sell phones made by China’s Huawei; the federal government’s Committee on Foreign Investment in the United States (CFIUS) blocked the sale of MoneyGram, a money-transfer company, to Ant Financial, an affiliate of China’s Alibaba Group; and Trump announced a 30% tariff on foreign-made solar panels. Trade experts expect Lighthizer to announce results of the Section 301 investigation of Chinese intellectual property practices—along with stiff punitive measures—within the next few weeks.

As if on cue, Chinese customs data released Friday show that China’s 2017 trade surplus with the US surged to $275 billion, the highest on record—although economists generally attribute the trade surplus to stronger growth of the US economy rather than an increase in unfair Chinese trade practices.

Brown argues that if Trump announces a new round of tariffs on China and Beijing retaliates in kind, “the current trade spat could quickly escalate out of control.” He worries, too, that US leaders seem uninclined to turn to the World Trade Organization or other multilateral institutions that helped resolve such grievances in the past.

A tit-for-tat trade fight between the world’s two largest economies coming on the heels of last week’s wild gyrations in global stock markets may not be the end of the world. But it will certainly make the world a much trickier place to do business.

Enjoy the weekend!

Clay Chandler
@claychandler
clay.chandler@timeinc.com

Trade and Economy

Hit the redial. China and the United States will restart their high-level economic talks, says China, following a brief suspension by the US last year after trade tensions escalated quickly between both sides. South China Morning Post 

Huawei banned. Two Republican senator have floated new legislation to ban the purchase of telecommunications equipment and services from Chinese makers Huawei and ZTF by U.S. government agencies, citing national security concerns. Caixin Global

Technology and Innovation

Not so fine. Beijing has fined Chinese tech titans Alibaba and Tencent for breaching of cross-border foreign exchange payments at their financial services affiliates. The fines, which follow similarly tightened controls over state-owned bank card network China Unionpay is part of Beijing’s ongoing clampdown on capital flight. Financial Times 

Bitcoin beyond the firewall. After banning initial coin offerings and shutting down cryptocurrency exchanges last year, China has this week placed all websites related to cryptocurrency trading and ICOs behind its Great Firewall too. Advertisements promoting virtual currencies have also been blocked from social media and search engines within China. Fortune 

Didi dominates. Didi Chuxing, China’s answer to Uber, has inked a partnership with 12 automakers including the Renault-Nissan-Mitsubishi alliance as part of its car-sharing platform launched this week. The company plans to build an electric-vehicle-sharing network in the world’s largest auto market. Fortune 

Apple and Alipay. Apple is now accepting payments via Alipay at its 41 mainland China stores. The move marks the first time Apple has permitted third-party mobile payments at any of its 500 shops globally and a concession of defeat in China, where its own ApplePay service has failed to catch on. Financial Times 

In Case You Missed It

Why China and the US Will Continue To Squander Money On Spying South China Morning Post

The Rise of China and the Fall of the ‘Free Trade’ Myth New York Times

Apple scores viral hit with Chinese New Year film ‘shot on an iPhone X’ Mumbrella

Here’s a crash course in how to apply China’s “basic principles of doing business” Quartz

In China, the data your car collects about you is for sale Quartz

Baidu’s iQIYI wants to become China’s Disney, but it’s up against tough rivals Tech in Asia

Chinese police are using facial recognition sunglasses to track citizens The Verge

First Rule of Chinese Fight Club: No Karaoke New York Times

Politics and Policy

Mercedes’ U-Turn. Another day, another errant Western brand. Mercedes-Benz had to issue an apology to Chinese consumers after quoting Tibetan spiritual leader the Dalai Lama, who Beijing exiled as a separatist in 1959, in an Instagram post on the brand’s official account. Reuters 

Xi’s anti-graft drive. A Chinese investor with links to former Chinese prime minister Wen Jiabao has been detained in China, according to the New York Times, in the latest update to their Pulitzer Prize-winning article published in 2012 on Wen’s hidden riches. The detention of Duan Weihong, who has developed luxury hotels with brands such as Bulgari and Aman Resorts, has led to speculation over whether Xi Jinping’s anti-corruption campaign might close in further on the top leader. New York Times 

The Vatican’s China controversy. The Pope’s legitimacy among Roman-Catholics will dwindle thanks to his recent concessions to China, argues the Wall Street Journal. The Pope earlier this week decided to accept the legitimacy of seven Catholic bishops appointed by the Chinese Communist Party, receiving “almost nothing in return from his Chinese counterparts”, except mockery. WSJ  

Summaries by Debbie Yong. @debyong
debbie.yong@timeinc.com

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