How Trump’s Trade War Is Driving China Nuts

Five years ago, China’s Xi Jinping rocked the Communist Party establishment by pledging to let markets play a “decisive role” in decision-making. Reformists rejoiced as President Xi signaled a revival of Deng Xiaoping’s pro-capitalism revolution.Things haven’t gone as planned. First, Xi slow-walked steps to reduce China’s reliance on runaway credit, debt and an antiquated state sector. He prioritized short-term growth over long-term upgrades. And then Donald Trump came along to imperil both objectives.

Initially, Xi’s government figured the president was bluffing. Beijing’s calculation was that, sure, Trump might slap some tariffs on Chinese goods, but it’s a mere negotiating tactic—his “Art of the Deal” writ large. After all, past American presidents had often attacked China on the campaign trail—only to make nice while in office. Xi’s men held it together as Trump slapped taxes of 25 percent on steel and 10 percent on aluminum. They figured Trump’s initial attack on $50 billion of Chinese imports in June would satisfy Peter Navarro and other protectionist voices in the White House.

Hardly, as Xi’s team is realizing. If the extra $200 billion of levies Trump tossed Beijing’s way in September weren’t reality-check enough, Mike Pence’s Oct. 4 “we-will-not-stand-down” speech suggests 2019 could get even worse for Beijing.

Pence accused Beijing of trying to “malign” Trump’s credibility, of “reckless harassment” and of working to engineer “a different American president.” On both economic and military issues, Pence declared: “We will not be intimidated; we will not stand down.”