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US, China face a face-saving problem

Presidents Trump and Xi have to find a way out of the escalating trade war without losing national support

The US and China have fired the opening shots in a trade war.

Washington has published a target list of 1,300 items from China worth an estimated US$50 billion (S$65 billion) that would be hit with an extra tariff of 25 per cent.

Beijing has responded with a target list of 106 US items worth a similar amount.

Both sides have been careful to leave time for further negotiations in an effort to prevent the tariffs from taking effect.

Most still seem convinced a last-minute deal can be reached without damaging the world's two largest economies.

The Trump administration has a record of announcing headline-grabbing trade policies then diluting or abandoning them in the face of stiff opposition and in exchange for minor concessions.

Trade wars are easy to start, but are unpredictable and difficult to halt.

A trade war between the US and China is one of the biggest risks to the global economy this and next year.

Neither Mr Trump nor Chinese President Xi Jinping can afford to be seen to lose a trade conflict or make concessions without securing something in return.

Mr Trump made trade a central plank of his presidential campaign in 2016 and faces tough mid-term congressional elections in seven months.

Dealing with China's perceived abuses is an important issue for the US president's core supporters and some elements of the US business community.

In China, Mr Xi has been re-elected as Communist Party chief and had the constitution changed to allow him to extend his tenure as president based largely on his promise of strong leadership.

The trade measures announced by both sides are largely designed to play to a nationalist audience.

Behind the scenes, both sides are trying to negotiate a settlement, and have been leaking some details to the media in an effort to calm concerns.

There are plenty of possible options to settle the dispute. The problem is that any compromise must allow both sides to save face.

And that will be much harder now that tariffs have been announced.

Both sides are likely to come under business and economic pressure to de-escalate, avoiding a major disruption of global trade and with it the increased likelihood of a recession.

But with the domestic political credibility of the leaders of both countries on the line, the scope for a mutually face-saving climb-down has narrowed.

THE THUCYDIDES TRAP

The trade conflict is really just one aspect of the increasing strategic competition between the US and China.

The US wants to maintain its military, diplomatic and economic superiority over all other countries while China is determined to achieve parity.

The problem has been termed the Thucydides Trap, after the conflict in ancient Greece between Sparta (the incumbent superpower) and Athens (the rising superpower) that led to the Peloponnesian War.

The problem of how to manage the rising power of China and its challenge to the superiority of the US has been evident for two decades.

China has appeared anxious to avoid the problem, and the government-run Xinhua news agency has published numerous articles on averting the Thucydides Trap in recent years. The issue has been extensively discussed by officials, including the president and foreign minister, as well as in opinion commentaries.

However, the two countries have already blundered into the Thucydides Trap on trade.

Areas where the two powers are in competition now include trade, overseas investment, advanced technology, naval and military armaments.

Intensifying diplomatic competition also covers multiple regions including the South China Sea, South-east Asia, the Indian Ocean, Central Asia, the Korean peninsula, Africa and Latin America.

It is possible to envisage a grand bargain that can resolve many if not all of the outstanding differences between the two countries on business issues.

There is still time for negotiations and opportunities for a mutually face-saving deal, though the uncertainty in the meantime is likely to be extremely damaging.

And just as real wars are often the result of unpredictable and unplanned escalation, trade wars can also spiral out of control. - REUTERS

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