Trade war: Trump’s strong-arm tactics with China slipping

President Donald Trump of the United States may find it harder to claim victory over China as his strong-arm tactics over trade tariffs may be slipping away.

Trump had earlier in the week ordered his officials to slap tariffs on $200 billion in Chinese goods on Sept. 24. In retaliation, Beijing said it would hit $60 billion in U.S. products with duties. Yet even as the conflict escalates, the Trump administration signaled it would still be open to talks as soon as next week.

But Trump’s leverage may be short-lived. The president’s political power will be curtailed if the Democrats win the House in congressional elections in November, as they are favored to do. While the U.S. economy has so far appeared resilient to the trade war, the boost from this year’s tax cuts is expected to fade.

Meanwhile, China’s economy is showing some signs of cooling, but it’s still growing at a brisk pace, giving Beijing room to cushion the blow. President Xi Jinping, who cemented his hold on power in March with the repeal of term limits, has reason to be patient.

“The issue of leverage varies with time. If you ask the same question tomorrow, the calculus will have shifted ever so slightly in favor of China,” said Stephen Jen, CEO of Eurizon Slj Capital Ltd., an asset-management firm based in London. “If you ask the question a week from now, things will be even more in favor of China.”

China’s economy was expected to slow as it relies less on debt and shifts to a growth model driven more by consumption, a shift touted Wednesday in a speech by Premier Li Keqiang.

Beijing has already unveiled measures to shield itself against the trade war, including infrastructure spending and looser bank capital requirements. While high debt levels may constrain the ability to respond, Xi still has plenty of ways to ease the pain.

The U.S. has already used a lot of fiscal ammunition. The $1.5 trillion in tax cuts that took effect in February gave the economy a boost, but the IMF expects the stimulus to wear off by 2020, when growth will slow. It still sees China becoming the world’s biggest economy by 2030.

Meanwhile, Trump’s latest weekly approval rating is 38 percent, according to polling firm Gallup. His Republican party could lose control of the House in Nov. 6 congressional elections. Senior Democrats such as House Minority Leader Nancy Pelosi have urged Trump to keep up pressure on China, but Democrats are not guaranteed to back his tariffs.

U.S. business opposition to the tariffs is growing. The administration says it’s trying to minimize the direct cost to consumers. Still, Trump has said he’s willing to slap duties on effectively all Chinese imports, suggesting it’s only a matter of time before mobile phones and other popular items get hit.

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