Hardening battle lines

It is amazing how quickly the Sino-US trade standoff is developing, and battle lines hardening, and it increasingly feels like this is the shape of the future, the new “new normal.” The message Beijing is sending out is that there will be no compromise. And in spite of Wall Street concerns and consumer puzzlement, the US side seems to be equally committed to holding out for whatever deal was on the table until it was changed by Those in Command. The US tariffs on goods from China are going up, with the Chinese side having also announced tit-for-tat tariffs. But the US side then doubled down on its basic robust stance with announcements that Huawei is now ruled out of the US market and there are significant controls on the extent to which American companies can sell to China’s top telecoms player. It is not as tough as the ZTE deal last year, which would have been a death blow if Trump hadn’t reversed the Commerce Department ruling, but it raises the question of how Huawei will operate longer terms without access to certain US tech elements. Qualcomm modem technology for one. We haven’t seen anything about Google’s Android but, who knows, that may get pulled as well. Huawei will have prepared for this day and stockpiled chips and prepared alternatives, but it will be a blow. Overall, it is interesting how muted the official response from Beijing has been. A sharp contrast to, for instance, the anti-Japanese broadsides in 2012. How important are the US ties to China’s economy, and to what extent is China capable of real self-reliance? We may be about to find out. One big plus that comes out of this whole process is that the world today has a much better understanding of how China works than was ever the case before. The workings of the China system are detailed most clearly in Richard McGregor’s book The Party, which makes good reading for the weekend if you haven’t already read it.