China's most influential twitter troll is on a rampage today.
Following his earlier threat that "China wants a deal but is prepared for the worst-case scenario, a prolonged trade war", uttered shortly after the Senate vote to support Hong Kong protesters and Trump's warning that the US could raise tariffs further if there is no deal (something we hinted at yesterday)...
Few Chinese believe that China and the US can reach a deal soon. Given current poor China policy of the US, people tend to believe the significance of a trade deal, if reached, will be limited. China wants a deal but is prepared for the worst-case scenario, a prolonged trade war. https://t.co/7KPp5cUOIQ— Hu Xijin 胡锡进 (@HuXijin_GT) November 20, 2019
... the editor in chief is out with a new taunt, this time addressing US farmers with a "friendly reminder" not to "rush to buy more land or get bigger tractors. Wait until a China-US trade deal is truly signed and still valid six months after. It's safer by then."
So a friendly reminder to American farmers: Don’t rush to buy more land or get bigger tractors. Wait until a China-US trade deal is truly signed and still valid six months after. It's safer by then. https://t.co/qxbFhEkfZN— Hu Xijin 胡锡进 (@HuXijin_GT) November 20, 2019
His advice is probably wise, especially since it was China and not the US that reneged on a trade deal when it was almost completed back in May, and it will be China again that refuses to comply with any trade deal that forces it to reverse on its entire economic model predicated on "borrowing" and reverse-engineering US technology, especially if there is some credible enforcement component attached to the deal.
On the other hand, Hu's tweets also betray China's growing nervousness.
While Beijing may have thought it had full control over the future of trade war and the "Phase 1" deal all wrapped up back at the start of October, when it also assumed that the upcoming Trump impeachment process would give it all the leverage it needed to pass through a photo-op of a "deal" with no enforcement provisions (while also buying Trump's welcome silence over the ongoing Hong Kong protests) recent developments have once again sent the shaky equilibrium into a tailspin, especially now that Beijing is contemplating how to respond to the Senate's unanimous passage of a bill that sides with Hong Kong protesters.
Indeed, as Bloomberg notes this morning, President Xi Jinping’s government has a problem: "Any strong measures against the U.S. also risk backfiring on China. That’s particularly dangerous as he struggles to contain escalating violence in Hong Kong and negotiates a trade pact with the U.S. all while the economy grows at its slowest pace in decades."
“It’s worth noting that the U.S. can do more damage to China than China can do to the U.S.,” said Shi Yinhong, an adviser to China’s cabinet and professor of international relations at Renmin University in Beijing.
The bill also threatens to derail the talks on the infamous "phase one" trade deal that are entering their final stages. Stocks in Europe and Asia fell along with American equity-index futures on Wednesday on concerns it could lead to further delays.
It was optimism that trade war with China would be resolved some time in December that has helped stocks hit an all time high in recent weeks; now whether that optimism persists will depend entirely on what China's retaliation will be.
“The imminent retaliation from China would be on the on-going trade talks,” said Huiyao Wang, another adviser to China’s cabinet and founder of the Center for China and Globalization in Beijing. “The Hong Kong bill will do tremendous damage to the prospect of a trade deal and stall the negotiation process as China’s side won’t engage positively with U.S. counterparts.”
To be sure, the Senate vote also presents a dilemma for Trump. A major reason he wants a deal now is so China can buy large amounts of agricultural products from swing states he needs to win re-election next year. If that doesn’t happen, his own political future is in doubt.
Hence, Hu Xijin's taunt to US farmers.
Trump's position is even trickier because Congress would easily be able to override any veto. If he signs the bill, he could torpedo the trade talks, while refusing to sign it would give his political opponents a chance to attack him for being weak on China.
Meanwhile, even though Xi Jinping doesn’t have to worry about that type of electoral pressure - as he recently crowned himself ruler for life - he also wants to stop the bleeding and avoid more tariff increases, including one still due to take place in December. And Xi may be under pressure within the Communist Party: A rare leak to the New York Times this week of internal documents showing human-rights abuses in Xinjiang signaled some dissent in China’s opaque political system.
Beijing has other options too: beyond merely delaying trade talks, it could hit out at U.S. companies (most notably Apple), halt cooperation on enforcing sanctions related to North Korea and Iran, recall the Chinese ambassador to the U.S. or downgrade diplomatic relations. It could also further tighten rare earth metal exports.
Yet the most likely outcome is that for all its huffing and puffing, China will do, well, nothing.
After all, when it comes to Hong Kong, Trump already has enormous leverage, and as Bloomberg notes, under the Hong Kong Policy Act of 1992, the U.S. president can issue an order removing the special trading status that underpins its economy, potentially with devastating consequences.
And since Beijing realizes will only do that if extremely provoked, it is likely to limit itself to “very high-sounding, rhetorical responses” rather than concrete actions hitting American economic interests, according to Willy Lam, an adjunct professor at the Chinese University of Hong Kong’s Centre for China Studies, who has authored numerous books on Chinese politics.
“The Chinese will, of course, cry foul, but the real reaction may not be that severe,” Lam said. “They will watch the situation and make a judgment later.”
As for Hu Xijin's tweet urging farmer to wait 6 months, we wonder just what the price of pork in China will be in six months. A simple extrapolation of the chart below showing the hyperinflation in Chinese pork prices...
... suggests that Beijing will soon come begging for US pork exports as the alternative is a very angry - and hungry - Chinese population, which as events in 2011 showed, usually has catastrophic consequences for the ruling regime.