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Column: Why China can win Trump’s trade war | Reuters

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(Reuters) – If you’re wondering why U.S. President Donald Trump can’t hope to win a trade war with China, look no further than Alibaba Group Holding Ltd., China’s answer to Amazon.

WASHINGTON (August 6) If you want to know why US President Donald Trump can’t hope to win his trade war with China, look no further than Alibaba Group Holding Ltd., China’s answer to Amazon.com. A container is unloaded at the port of Hamburg, Germany, in July 2018. REUTERS/Fabian Bimmer

Last month, I had the opportunity to have two in-depth conversations with Zeng Ming, Chief Strategy Officer of Alibaba and one of the top business and financial figures in China. Mr. Zeng made it very clear that there are not many places where China really needs the United States. We don’t need American products, we don’t even need American ideas. Even after setbacks, China is proving it can bounce back.

On the one hand, the Trump administration appears to be doing its best to wage a competition or war that was doomed from the start.

The latest move by the US president is to threaten to increase tariffs on $200 billion worth of Chinese goods to 25% from the planned 10%. Within 24 hours, China released a list of 5,207 U.S. goods worth $60 billion that face retaliatory tariffs of 5% to 25% if Trump follows through on his threats. If that happens, it will be an all-out trade war.

Fortunately, the Trump administration has extended the deadline for public comment before the tariffs go into effect until September. Meanwhile, markets on both ends of the Pacific continued to be volatile, at times on the verge of panic.

Chinese stocks have been hit harder than U.S. stocks, but Trump believes the U.S. can bear the pain for longer and that a tighter squeeze would help Beijing negotiate.look like

But it lacks an understanding of the mentality of the Chinese people and the resilience of the Chinese economy, which, while weaker than a year ago, is still expanding at nearly twice the rate of the United States.

When people who don’t really understand the gravity and mechanics of things get sucked into the chaos that awaits them, there’s no indication of how bad things can get.

Secretary of State Mike Pompeo last week unveiled a new policy of even isolating China that is almost absurd in its scale and senselessness. Dubbed the “Indo-Pacific Economic Vision Plan,” the policy is widely seen as a counter to China’s “Belt and Road” initiative, which will pull Asia and Europe. But it’s a very stingy countermeasure.

Trump has pledged $113 million to the program, which compares favorably with China’s $82 billion Belt and Road Initiative launched three years ago and is now estimated to be worth $900 billion, within the margin of error. It won’t even be competitive.

However, as Hong Kong’s English-language South China Morning Post noted, the U.S. move “has heightened Beijing’s suspicions and worsened a relationship already rife with trade tensions between the two countries.

Moreover, China is prepared to go to great lengths to maintain its grip on global trade strategy.

For Washington to win its trade war with China, or to achieve the best long-term outcome that satisfies both parties, it needs to understand the forces it will face.

From my conversations with Mr. Zeng of Alibaba, I learned that China’s fast-growing economy, especially large parts of the domestic economy, is either immune to trade disputes or able to find workarounds. Either you can or you can. The author’s interview with Zeng was published in Forbes Asia Magazine.

In January, U.S. regulators blocked Alibaba’s Ant Financial from acquiring MoneyGram International. In response, Alibaba has developed a new product that is in many ways more innovative using blockchain technology.

“Any new business faces obstacles as it grows. I understand that. It’s part of the cost of doing business,” Zeng said. “There may be frustration, but the value we create is so great that we will find ways to overcome obstacles,” he added.

That doesn’t mean that many of China’s private and state-owned companies are no longer trying to get their inventions from Silicon Valley. The more America blocks them, the more likely the Chinese will find their own solutions.

Let me give another example. Last year, the US government’s Committee on Foreign Investment announced that US semiconductor giant Intel would transfer a 15% stake in HERE, a European map and location information service operating in the US, to a Chinese digital map service giant. The deal NavInfo is trying to acquire.

As a result, Nabtuk withdrew its application for a stake acquisition and expanded partnership with Here, German auto giant BMW, Daimler and Volkswagen. NabInfo was named to Forbes’ list of the World’s 100 Most Innovative Growth Companies (2017).

To be sure, while China leads in the auto market and home appliances such as refrigerators and washing machines, it may lag behind in areas such as artificial intelligence (AI). But, as Zeng says, “It’s not about our size, it’s about our experience of innovating and our understanding of where we’re going.”

This deep understanding and preparation to fight for the long term may eventually lead to China’s victory in the trade war.

The Chinese, especially their leadership, have a very strong and developed sense of self. The ability of the leadership to withstand external pressure predates Mao Zedong and the communist revolution. Around 1000 BC, in ancient China, the Zhou Dynasty believed that the legitimacy of a king depended on his virtue and that his rule was mandated by heaven. Someone with this kind of fatalism and self-esteem is unlikely to see a secular leader like Donald Trump as a huge obstacle.

Losing face is considered China’s biggest mistake.

The best and most durable trade deals should at least be win-win, but with Trump now entrenched in his America First agenda, Chinese leaders don’t have much room to adjust in a way that respects them.

Trump must prepare for a long war of attrition. If no one can talk him out of it, all Americans will pay the price for Trump’s trade crusade.

* The author was a former reporter for The New York Times and CBS Television. He is the author of A Broken Peace: Versailles 1919 and the Price We Pay Today.

*This column is the author’s personal opinion.

*The news, transaction prices, data and other information in this document are provided by Reuters columnists and are for your personal and commercial use only, and are not material. The content of this document is not intended to solicit or induce investment activity, nor should its content be used for the purpose of making a transaction or buying or selling decision. This content does not provide any investment, tax, legal, etc. advice that constitutes investment advice, nor does it make any recommendations about specific financial stocks, financial investments or financial products. Use of this document is not a substitute for investment advice from a qualified investment professional. While Reuters makes reasonable efforts to ensure the reliability of the content, any views or opinions provided by columnists are those of the columnists and are not affiliated with Reuters.

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