CHINA-ECONOMY: TRADE WAR AND VICE PREMIER LIU HE'S NEGOTIATION POSITION

The major Hong Kong newspaper Apple Daily on May 31 published an analysis by senior Chinese journalist Lu Yue on China’s Vice Premier Liu He and his position on trade. Liu He is currently the Special Envoy of President Xi Jinping and China’s Chief Negotiator for trade negotiations with the United States. He was a two-time student (1994 and 2002) at the Harvard Kennedy School, where he obtained his Master’s degree in Public Administration. Liu He is a long-time close confidant of Chinese President Xi Jinping and was also his economic adviser for ten years when Xi Jinping was in Fujian Province. 

In the current “trade war” with the United States, China’s top leadership has not made any direct comment on any tactics. Critical noises are being made by the Ministry of Foreign Affairs, the Ministry of Commerce, Customs, and the Chinese media. The Apple Daily says Liu He is essentially against taking on a full-blown trade war with the U.S. because it might result in a loss that could trigger a total collapse of the Chinese economy. Liu He has built his judgement on three factors: (i) China did not fulfill the promises it made to the World Trade Organization (WTO); (ii) China can sustain the trade war only to US$150 billion, which is the total amount that China imports from the U.S; and (iii) the United States can find a substitute elsewhere for all goods that the U.S. imports from China, while most of the goods that China imports from the U.S. are critical at the life-line level. This is especially so in the high-tech product category. China, as an information society, may cease to function if the U.S. expands its export ban on ZTE to all Chinese buyers. It would be a better situation for China to accept Trump’s conditions and then use those as a driver to push much needed internal reforms.

Liu He’s current negotiation strategy is “overall compromise coupled with partial discussions.” He is extremely good at working out convincing details in the numbers, which was the reason his 15-minute meeting with Trump got extended to 45 minutes. As an example, Liu He offered US$60 billion worth of agricultural purchases when the U.S “ask price” was US$30 billion. China’s refusal to commit to $200 billion in trade deficit reduction was largely a PR show.






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