In Beijing Domestic Issues Take Precedence Over Trade War

The elevation in trade tensions between the US and China may have dominated headlines in recent months, but a tariff war is not the most pressing concern for Beijing, according to one research firm.

Rather, more domestic concerns are seen to be taking priority, London-based consultancy TS Lombard said in a research note last week, CNBC reported.

“For the Chinese leadership, stabilizing the domestic economy, pursuing the ‘Made in China 2025’ modernization program, defending the power structure constructed by Chinese President Xi Jinping and pursuing the global ambitions set out by the Communist Party take precedence over the trade war with the US,” Jonathan Fenby, China research chairman at TS Lombard, wrote in the note.

Still, the trade dispute, which has roiled global markets and unsettled the business community in recent months, has had an impact. Fenby acknowledged that news flow out of the White House has “disrupted Beijing’s planning and made it reluctant to enter into a re-run of the spring negotiations” that US President Donald Trump had “overturned”.

Tensions have ratcheted higher since bilateral trade talks between the two countries fell through, although there has been at least one attempt to restart negotiations.

Against that backdrop, Trump earlier this month asked trade officials to consider increasing proposed tariffs on $200 billion worth of Chinese goods to 25%, from an initially announced 10% rate. The move came on the back of the weakening of the yuan, which has slid some 6.5% against the dollar since June.

China said on Friday it would impose duties on $60 billion in US imports, with rates ranging from 5% to 25%, if the US went ahead with putting more tariffs on Chinese goods.

Amid the brinkmanship, analysts have said that China could be the party that’s less likely to back down due to the government not being constrained by domestic political pressures in the same way a US administration is.

Meanwhile, China has tightened controls on trading in its yuan to discourage speculators after a decline against the dollar amid a tariff dispute with Washington fueled fears of a damaging outflow of capital from the world’s second-largest economy.

Traders must post a 20% deposit starting Monday for contracts to buy or sell yuan on a future date. That raises the cost of betting it will drop and might help to discourage speculative trading.

The tightly controlled yuan has been allowed to decline by about 8% against the dollar since early February.