AYESHA RASCOE, HOST:
Now the view from Beijing. China says it will, quote, "fight to the end" in the trade war. But it's also signaled that it's done with tit-for-tat increases in reciprocal tariffs, saying American retaliations were becoming a joke. We're joined now by Keyu Jin. She's in Beijing and is an economist and author of the book, "The New China Playbook." Welcome to the program.
KEYU JIN: Thanks. Great to be with you.
RASCOE: There's been some defiant statements from China's government, but do you think the country's leaders may actually be open to making a deal?
JIN: Chinese leaders are absolutely open to making a deal. A very important whitepaper has signaled in which areas they can potentially cooperate with the U.S., really signaling that they really should be having a rational dialogue.
RASCOE: What kind of a deal would be acceptable to Beijing?
JIN: Actually, buying more agricultural products, buying more energy from the U.S. is something that China can accept, maybe in exchange for fewer technological restrictions, at least for a detente, at least, to say, look, you know, let's not destroy both of our economies and the economies of others. In fact, it's not inconsistent with China's development model to import more high-tech products from the U.S., to go up the value chain itself, and to do a little bit less of low-end manufacturing, which is what is really exporting to the U.S.
RASCOE: Didn't they do - the U.S. and China do a deal under the first Trump administration, where there was an agreement that China would buy more agricultural products and such? Did they actually follow through on that?
JIN: Only partially. But what we can learn from the last trade war is that the Chinese, by pressing a 25% tariff on soybeans, eventually led to a lot of resistance from the agricultural states, which is Trump's political base, and that eventually led to the Phase 1 deal. Now, the Phase 1 deal ultimately didn't work because the trade deficit between the two countries is not because of tariffs. It's because the U.S. is saving too little, and China is saving too much.
RASCOE: The Trump administration has announced some tariff exemptions for smartphones, computers and other electronic goods, many of which are made in China. How will Beijing interpret that move?
JIN: Well, Beijing will interpret it as the U.S. is protecting Apple. Where it looks like a little bit of a detente that the temperature is being taken down, it really mostly benefits Apple. And China is doing the same thing, selectively targeting certain industries or being loose on certain industries to benefit itself.
RASCOE: If things were to escalate further, what steps could China take to pressure the U.S.?
JIN: Well, first of all, Chinese leaders really consider the tariffs now really as a blackmail. And from China's perspective, any concessions will lead to more demands from Trump, so it will stay strong. But if this escalates, well, China is more prepared than the last time around, and, in fact, since Trump 1.0, the Chinese companies have been diversifying their supply chains, their factories. They're moving away from the sectors that are most vulnerable to U.S. exports. If you look at EVs and batteries, that only accounts for 5% of Chinese exports, the ones going to the U.S. So they have been strategically pivoting away from the U.S. already.
RASCOE: Are there things that China could do specifically to pressure the U.S.?
JIN: In fact, China's tactic has changed from an all-around defense strategy to targeted strategy, really aiming at where it hurts in the U.S. That's the agriculture sector, that's the energy sector, even, you know, Hollywood films. There's now a reduced quota for Hollywood films, and maybe now the pressure is going to be on U.S. enterprises that work in China. And actually, the latest news is, it's not just tariffs. It's all the nontariff barriers that China can use as an economic weapon, as well.
RASCOE: This moment exposes big differences in how the world's two largest economies are run. How do you think it's likely to play out?
JIN: There are deeper issues that tariffs are just not going to resolve, and here, China needs to change, the U.S. needs to change. If the U.S. fiscal deficits continue, the overall deficit will still be around with or without tariffs. China's problem is that it does have excess supply, so only by raising its own domestic demand, really spending more domestically, and only by restraining these export capacity, not only to the U.S., but around the world, will there be much more of a balance. The two economies need to figure that out with patience, with rationality, but not engage in this tariff war.
RASCOE: And long term, what do you think Beijing will hope to achieve from this trade war?
JIN: Beijing hopes to reduce exposure to the U.S. We are already seeing a tech chain, one led by China, one led by the U.S. What has fundamentally changed from this tariff war is that U.S. allies like Europe, like Japan, like South Korea, want to hedge. They don't want to just be in the American chain. So you see a much stronger alliance, especially between Japan, South Korea and China, whereas a few years ago, China was seriously afraid of being cut out of this critical technology chain. It is no longer the case. It is more confident than it was before, even if it's economically weaker than it was.
RASCOE: That's Keyu Jin, author of "The New China Playbook." Thank you so much for joining us.
JIN: Great to be with you. Thank you.
(SOUNDBITE OF ORIGAMIBIRO'S "FRACTURE") Transcript provided by NPR, Copyright NPR.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.
