As 2018 dawned, the world’s two largest economies were starting to engage in a trade battle that would shake the global economy, upend markets around the world, upset corporate plans in the United States, Europe, and Asia, and affect the lives and jobs of more than 1 billion citizens. The power struggle between the United States and China is the most important geopolitical contest of the early twenty-first century.
For all that, the fight resembled a schoolyard brawl. The two antagonists relentlessly circled each other determined to settle old scores. To Donald Trump, China had been cheating the United States for decades. It was time for someone to smack down the cheaters. To Xi Jinping, America was a bully and jealous of China’s ascent. America was trying to clobber China before it grew too powerful to challenge. It was time for someone to show the bully he wouldn’t back down.
Over the following two years, the two sides landed punches and counterpunches, took breathers, called in allies, and tried to psych each other out. As night dawned on the schoolyard fight, the brawlers decided to take a break, but the fight was hardly over. Examining the struggle in detail reveals the strengths and weaknesses of the two combatants, their strategies and their mistakes. Each side thought it was more resilient than it really was; each side exaggerated the weakness of the other. With the two nations heading to a new Cold War, it’s important to understand the calculations and miscalculations that produced the conflict. The following chapters lay that out.
Initially, Xi looked for a quick end to the fighting. At the beginning of 2018, China’s usually reliable engines of growth—exports, real estate, and industrial output—were all showing signs of sputtering. The last thing the Chinese leader needed was another problem. In January, Beijing got a sense of the trouble that could lay ahead when the Trump administration slapped steep tariffs on solar panels, an industry dominated by China. The Chinese embassy in Washington also warned Beijing that the administration was preparing its Section 301 report, which could lead to heavy new tariffs.
Xi wanted to clear away problems before the annual meeting of the legislature on March 5, which would rubber-stamp changes he wanted to make to China’s constitution. By then, there was little doubt that Xi wasn’t the kind of reformer the United States had hoped for. Rather, he was all about party control and, like Trump, he wasn’t shy about breaking with convention. Xi’s policies and philosophy, known as Xi Jinping Thought, would be added to the constitution’s preamble. Presidential term limits, introduced after Mao Zedong’s death in 1976, would be eliminated. The Chinese leader wanted the moment to commemorate his hold on power—a grip rivaling that of Deng Xiaoping, if not Mao himself. He didn’t want the event overshadowed by a battle with Washington, which could diminish him politically.
Xi directed his old colleague Wang Qishan, whom he planned to install as vice president, to figure out what the Americans wanted. Wang had worked closely with Americans since the 1990s, when they jointly cleaned up Chinese telecommunications companies and banks and arranged for China’s first public stock offerings. He knew generations of U.S. business and political leaders and would invite them to what he called “old friend” sessions, where he would shed his suit and tie for Mandarin-collar jackets and soft-sole shoes. The sessions were meant to be casual discussions of changes in America and China.
In late 2017, he invited David Rubenstein, cofounder of the Carlyle Group, a U.S. private equity firm whose investments in China spanned financial services, health care, and technology. “Is Trump a rare phenomenon, or a trend?” Wang asked Rubenstein, as officials from China’s Foreign Ministry took notes. (The informality of “old friend” sessions only went so far.)
“Trump is an indicator of the changing attitudes in the U.S.,” Rubenstein responded.
Wang agreed. He said the “New York financial people” who came to see him were too optimistic about how the average American sees China and the average Chinese sees America.
In early January 2018, a group of visiting American CEOs, including former Clinton administration Defense Secretary William Cohen, who now ran his own consulting firm, weren’t nearly as candid. Wang challenged them to tell him about problems they encountered in China, which he figured the Trump administration would echo. But the participants mainly used the time to pitch him on what their companies had to offer China. Annoyed, Wang admonished the group. He wanted intel, not hype.
A few months later, Wang met with the new U.S. ambassador to China, former Iowa governor Terry Branstad, who had hosted Xi Jinping in 1985 when Xi was a low-ranking official touring America. Wang flattered Branstad by telling him how much Beijing valued dialogue with Washington and how foreign pressure helped Beijing push through reforms. The ambassador was more forthcoming; he warned that the administration’s patience with Chinese policies was running low.
In early February, Xi dispatched Yang Jiechi, China’s top diplomat, to Washington to try to ease tensions. That was a big change in mission for Yang, whose visit to Washington in late 2016 to lecture Trump campaign staff that the president-elect shouldn’t challenge China on Taiwan still rankled some Trump officials. Now Yang brought what Beijing considered a soothing message: China didn’t want to fight. “We hear you,” he told U.S. officials. China was ready to work on the trade issues near to Trump’s heart over the next three to five years.
But all the Americans heard was Yang’s time frame. More delay, U.S. officials fumed. They wanted change and they wanted it quickly. No more “bread crumbs,” a U.S. official said at the time.
By the time Xi’s trade envoy, Liu He, arrived in Washington at the end of February for the first round of substantive trade talks, Trump’s bitterly divided trade team was, for once, united. Liu was to meet jointly with U.S. Trade Representative Lighthizer, a trade hawk, and the two senior administration officials most opposed to tariffs, National Economic Council Director Gary Cohn and Treasury Secretary Steven Mnuchin. The trio prepared to deliver a united message during meetings at the Treasury.
Liu, then sixty-six years old, was the kind of Chinese envoy who usually does well in Washington—friendly, English-speaking, well-connected at home, with a reputation as a reformer. A boyhood friend of Xi, he had the Chinese president’s full support. The Liu and Xi families lived in the same Beijing neighborhood in the 1960s and both had been victimized by the cruelty of the Cultural Revolution. Liu’s father, Liu Zhiyan, a Communist Party veteran who drafted many party documents during the early years of the People’s Republic, was purged and committed suicide in 1967 when he was forty-nine years old. Liu He, fifteen years old at the time, was dispatched to the countryside to learn from farmers and workers.
Over the years, Liu rose through the ranks of the powerful National Development and Reform Commission, the old state-planning agency, which still approved large investments throughout China. He helped put together China’s five-year plans that set economic goals. But he had little power to make major policy decisions before Xi assumed power in late 2012.
Liu’s career then blossomed. Xi named him to head a party agency, clunkily named the Office of the Central Leading Group for Financial and Economic Affairs, which works something like the White House’s National Economic Council. Liu’s agency frames economic policy options for senior leaders. When tensions arose between the central bank and the Finance Ministry over who should do more to spur growth, Liu would act as referee. Underlings called him He Shu—Uncle He—for his mild, soft-spoken demeanor. (The “He” in Liu’s name is pronounced “heh.”)
When Xi wanted a trade envoy he could trust, he jumped Liu ahead of another senior party official who was in line for the job, Hu Chunhua. Hu had spent much of his time governing Tibet and tamping down the region’s political independence movement. Although he was considered a rising political star, he didn’t have the experience dealing with Americans that Liu did.
U.S. economists and China experts vouched for Liu as a reformer, who honed his English skills and learned market economics when he studied at Harvard’s Kennedy School of Government, the same incubator as many in Washington’s foreign policy establishment. His top aide during the trade negotiations, Liao Min, also had ample experience dealing with Westerners. In the 1990s, he got his start trading securities at China’s central bank and acquainted himself with the ins and outs of capital markets—at the time still a novelty in China.
Liao’s 1998 book, The Rising Euro, is the first book published in China on the birth of the single currency and its effects. Then Liao moved on to regulate banks in Beijing and Shanghai, and spent years pushing to make China’s financial industry more open to foreign investors. A fluent English speaker, he has an MBA from the University of Cambridge and sometimes wore a Cambridge hoodie when he wasn’t darting in and out of negotiation rooms.
Liao also made a name for himself in a way that’s not typical of Communist technocrats. He wrote folk songs, among them, “Fleeting Youth” and “Waiting for Someone Is Like Drinking,” and released albums while studying at Peking University from 1986 to 1993. When he joined Liu He’s team, China’s online community dubbed him “The folk music singer.”
Before Liu became a Xi adviser, he often met with visiting American politicians and business leaders at the private Chang An Club, above a Beijing Porsche dealership. He shunned big entourages and was always prepared with binders filled with statistics and charts on the Chinese and U.S. economies, and plans for reforming the Chinese economy.1 He was a Chinese official who could convince Americans that Beijing and Washington shared common goals and a common destiny.
Liu later drafted Xi’s first economic blueprint in 2013, which promised to give market forces a bigger role in the economy. In 2016 he was the “authoritative person” who took to People’s Daily to criticize the old way of stimulating China’s economy through debt. 2
But Liu was also a Communist Party functionary who believed in a powerful role for the state and party. He was also relatively low in the Zhongnanhai pecking order. Even if Liu wanted to push through market-oriented reforms, he lacked the sway of Washington’s favorite reformer, former premier Zhu Rongji, who had enormous political power and bureaucratic cunning. When China needed to change to join the World Trade Organization, Zhu was able to win President Jiang Zemin’s support and push through reforms that eliminated thousands of state-owned firms, even though that produced massive layoffs.
Liu had much less room to maneuver because of Xi Jinping’s stepped-up emphasis on state control of the economy. “Ultimately, Liu He is dependent on his ability to keep Xi Jinping on board with his policy proposal,” says Barry Naughton, an expert on China’s economy at the University of California, San Diego. “This is his greatest strength but also his biggest limitation.”
When Xi prepared to deliver his vision for China’s development at an October 2017 party congress, Liu sought to convince the president to inject more market discipline into state-owned companies, which the top leader had described as the foundation of the party’s rule. In a 30,000-word report, Liu focused heavily on one section. Rather than saying “state companies” should become “stronger, better and bigger,” as Xi wanted, Liu was able to convince him to substitute the term “state capital.” In the Chinese system, the one-word change was enough to signal to state firms that they must improve their returns and act more like commercial firms. But there is little evidence that the change in terminology led to any meaningful changes in the way state-owned firms operated, reflecting Liu’s limited ability to push through fundamental reforms.
During a meeting in Beijing in January 2018, Liu met with a bipartisan delegation of former senior U.S. officials led by Myron Brilliant, the U.S. Chamber of Commerce executive vice president. The delegates included Bill Clinton’s top trade negotiator, Charlene Barshefsky, and Carlos Gutierrez, George W. Bush’s Commerce secretary. They pressed Liu on why China hadn’t made more progress reforming markets and revamping the state sector. Liu indicated some sympathy for their position and said state firms must be held more accountable. But given how hamstrung he was by Chinese politics, he didn’t give them much hope that a major overhaul was in the works.
“He’s not an apologist for China’s economic policy,” says Brilliant. “He implied that, ‘We’re on the path to more market reforms, even if it’s not at a pace Americans would like to see.’”3 An article Liu wrote for the People’s Daily in November 2019 affirmed that approach. China will “promote structural adjustments of the state-owned economy, invest more in important industries and key areas related to national security, and serve the nation’s strategic goals,” he wrote. In other words, expect some state-sector reforms but China is sticking to its state-driven system.
When Liu conferred with Lighthizer, Cohn, and Mnuchin in Washington on March 1, 2018, he unveiled a five-point plan. Such initiative is unusual for Chinese officials, who routinely wait for their foreign counterparts to make an opening bid and then try to scale back the foreigners’ demands. Beijing offered to reduce tariffs on U.S.-made autos and other products; move ahead with the $250 billion in commercial deals promised during President Trump’s visit to Beijing; send trade missions to the United States to boost imports; open China’s financial sector further to foreigners; and launch negotiations for a free trade agreement that would reduce trade barriers and boost investment opportunities in China.
The offer barely registered with the Americans. The pledge on financial liberalization was a rehash of previous offers, they believed. Free trade negotiations would tie up the two sides in years of negotiations and would ignite opposition in Congress, where even free trade deals with allies are controversial. More significant, Liu didn’t make any offer on what the United States considered China’s greatest economic sins: stealing U.S. intellectual property, and subsidizing state-owned firms to buy up American competitors or roll over them.
The Americans told Liu that the United States wanted Beijing to cut its $375 billion trade surplus with the United States by $100 billion—and quickly. As for the rest, the three Americans said repeatedly: China knows what it needs to do. Come up with solutions to the problems that have vexed American workers and companies for years, they told Liu. Let us know when you are ready to truly negotiate. The Americans didn’t hand Liu a list of demands for a deal, another change from past practice.
“The message to China was ‘We’re serious,’” said a U.S. negotiator. “We’re not going to be tapped along, like prior administrations. If you want to put real issues on the table, we’re happy to talk twenty-four hours a day.”
To the Chinese, the meetings in Washington were a series of humiliations. The American bullies were lording it over their Chinese guests. They approved only a handful of visas, not the forty Beijing sought. The meeting with U.S. officials turned into a harangue. President Trump left town to go golfing at Mar-a-Lago rather than meet with Liu, as the Chinese embassy thought the U.S. side promised. After that snub, Liu canceled a meeting with Blackstone Group chief executive Stephen Schwarzman, whom China counted on to set up the Trump meeting.
President Trump declared himself satisfied with the outcome. “Trade wars are good, and easy to win,” he famously tweeted on March 2, the day after Liu He met with his American counterparts. “Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore,” he added. “We win big.” Don’t get cute with me, Trump was warning. The billionaire Manhattanite, who was chauffeured around town in limousines, spoke naturally in the language of New York City schoolyards.
Back in Beijing, officials were outraged. Liu’s offer was “an excellent package,” which Washington failed to appreciate, Fang Xinghai, a vice chairman of the China Securities Regulatory Commission, told American business representatives on March 20. Fang is a prominent economic reformer whom Americans consult to figure out the thinking of more senior leaders. As negotiations ground on over the following two years, Liu would tell foreign visitors that the February trip was “the best time to reach a deal.”
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Washington’s apparent unity on trade policy was a façade. Internal divisions would undermine and hamper the U.S. efforts for the following two years. The splits reflected Trump’s conflicting views on China and trade. Was he Blue-Collar Trump, looking to make good on his campaign promises to stop the pillage of America by Chinese imports, as he had promised during the campaign? Or was he Wall Street Trump, worried about the market reaction to a deepening trade dispute? The problem for people trying to figure him out—Americans and Chinese—was that he was both. It was hard to tell which side of him was ascendant at any particular time. In early 2018, Blue-Collar Trump was riding high and so were the advisers who played to that part of his personality.
While Liu was still in town, Trump finally made up his mind how to handle steel and aluminum tariffs, an issue that had tied up the administration for a year. Steel took precedence over aluminum in the administration’s deliberations. Trump had promised to restore the industry to its glory days, and Lighthizer and Commerce Secretary Ross had long experience battling steel imports. Industry analysts also agreed that China’s massive, subsidized steel production undermined prices globally and made producing steel in the United States frequently unprofitable.
Dealing with the problem wasn’t simple. U.S. steel industry lawyers, including Lighthizer, had effectively shut out Chinese imports through trade lawsuits. Chinese producers managed end runs, though. Sometimes they shipped steel to buyers in other nations, who processed it somewhat and then shipped it to the United States, so the steel wouldn’t count as Chinese exports. Chinese mills also expanded overseas and exported directly to the United States from other nations.4 Just the threat of additional Chinese steel exports was enough to depress the market. Ross’s Commerce Department studied the issue and, dusting off another rarely used part of U.S. trade law, argued that steel tariffs were necessary to protect national security.
In heated White House debates, even the Pentagon objected that the rationale was bogus. The United States produced plenty of steel and could rely on Canada and other allies for more in pinch. Cohn and others objected that tariffs would backfire by raising prices on U.S. consumers of steel, a much larger industry than steel producers. “If you put tariffs on steel, you’ll kill the RV industry,” Cohn argued, because the cost of the big campers would jump. “Ask the vice president what he thinks of that,” he said, knowing that the industry was based in Mike Pence’s home state of Indiana. (Cohn turned out to be prescient about RVs.)
Former steel industry lawyer Lighthizer also raised concerns about tariffs, though rarely in front of Trump, letting others take the heat. The tariffs would have to be applied globally to work, which meant targeting allies the United States would need in a China trade battle. The timing was wrong, Lighthizer argued. Why anger Europe, Japan, Canada, and others when you want to present a solid front against China? An assault on steel could come later.
NEC staffers Clete Willems and Everett Eissenstat hatched a plan using a different approach, which they dubbed “Save Our Steel.” Under the proposal, the United States would start a second Section 301 trade investigation, this one focused on China’s steel excess capacity. The new investigation would substitute for Commerce’s plan and eliminate the need to argue that steel imports harmed national security. Under Section 301, the United States could assess tariffs on Chinese imports and negotiate with other countries that imported Chinese steel, only to re-export it to the United States. Either stop the transshipments or the United States would hit them with tariffs.
Cohn and White House Staff Secretary Rob Porter, who played an important role in trade policy, embraced the plan and argued to Trump that the United States could line up allies to fight Chinese steel rather than fight with them. At a July 2017 summit of the G-20 nations in Hamburg, Germany, the United States had already won a pledge that the leaders, which included China’s Xi Jinping, would “rapidly develop concrete policy solutions that reduce steel excess capacity.” Save Our Steel would build on that.
Navarro, Ross, and others, though, thought the steel proposal would be ineffective and yet another effort by globalists to delay action. The plan wouldn’t help U.S. industry steelmakers if other countries ramped up exports to the United States instead of China, says Ross now. 5Trump listened to the arguments and was noncommittal. But he wanted action quickly, and Save Our Steel was bound to be a complicated multiyear effort.
When the tax cut was signed into law in late 2017, the anti-tariff forces lost their best argument to persuade Trump to hold off. No longer could they say that the tariffs could cost Senate votes on the tax measure. The North Korea argument didn’t work anymore, either. In 2018, China seemed to be cozying up to Kim Jong Un, White House officials believed. One said Xi had begun to act like Kim’s lawyer. Confronting China on trade wouldn’t make the situation with North Korea worse, Trump came to believe.
On the evening of February 28, 2018, Ross and Navarro walked into the Oval Office and were able to convince Trump to approve the steel tariffs. To make sure the president wouldn’t backslide, they invited U.S. steel executives to meet in the White House the next day for a big announcement, without informing the chief of staff or their administration opponents. Cohn tried to get the meeting canceled, but failed. Ross and Navarro’s White House opponents dubbed their ploy “the Midnight Massacre.”
In the White House’s Cabinet Room on March 1—around the same time Liu He was meeting with steel tariff opponents Lighthizer, Cohn, and Mnuchin—the president announced he would go ahead with 25 percent tariffs on steel and 10 percent tariffs on aluminum. “We’re going to build our steel industry back, and we’re going to build our aluminum industry back,” the president promised. He then asked the leaders of U.S. Steel Corporation, Nucor Corporation, and United Aluminum Corporation to talk about how the decision would help their companies.
The Dow Jones Industrial Average fell 420 points after the announcement, not as far as Cohn had predicted or enough to make Trump recant. Europe and Canada also retaliated despite Navarro’s assurances that they wouldn’t dare do so. This was enough to remind Trump and others in the White House that the market was watching trade policy carefully. That would factor into the president’s decision-making later on.
Within days, Cohn resigned. That followed the exit of Porter, who had been accused of abusing two ex-wives, an allegation he denied. Secretary of State Rex Tillerson, another globalist, was soon out the door. A fourth globalist, presidential son-in-law Jared Kushner, was also sidelined. He steered clear of China issues for some time after the New York Times published articles alleging that he met with China’s Anbang Insurance Group about investing in his family company’s property on 666 Fifth Avenue. (Anbang’s founder, Wu Xiaohui, once one of China’s most prominent tycoons, had sought the investment as a way to build himself up with Chinese authorities. Wu was convicted of fraud and embezzlement in 2018.)
The personnel moves tilted the playing field further toward the White House’s nationalist wing, with its hard-line views on China. The nationalists had lost their ringleader, Steve Bannon, who flamed out spectacularly in August 2017 when he did an interview saying the Trump strategy on North Korea was bound to fail. By then, though, Bannon was a spent force in the White House.
With the steel issue decided, for better or worse, attention focused again on the Section 301 report, which was to lay the foundation for the economic battles ahead with China. With lawyerly attention to detail, the trade representative’s office held hearings on the proposed report, while White House economic officials debated what actions to take. The results were easy to predict.
The October 2017 hearings led off with a statement by Richard Ellings, who had directed a 2013 private sector Commission on the Theft of American Intellectual Property. He repeated the report’s findings that China was responsible for 80 percent of the theft, which cost the United States hundreds of billions of dollars a year and millions of jobs. He was followed by executives of an American solar panel company and a wind energy company, who blamed Chinese theft, espionage, and underhanded tactics for their firms’ woes.
The National Security Council pushed to declassify documents involving Chinese cyber espionage and other issues. That work was included in a February 2018 report by the White House Council of Economic Advisers, which calculated that “malicious cyber activity” cost the U.S. economy between $57 billion and $109 billion in 2016 alone. The report examined 290 cyberattacks and detailed some of the largest ones involving China.
At the same time, seventy-four petitioners filed comments with the trade representative’s office on Chinese trade practices—mainly trade associations because individual companies feared retaliation from Beijing. Government officials claimed that some business executives were afraid to walk into the trade representative’s building on Seventeenth Street because they believed the Chinese tracked who entered.
Even longtime China allies urged the trade representative to take strong action. The U.S.-China Business Council, an organization of big exporters that had lobbied furiously for China to join the WTO, submitted an eighteen-page paper detailing the many ways Beijing pressured its members to hand over valuable technology. “The requirement to transfer technology as a condition to gain market access in China is an acute concern of American companies in key sectors, who often must make difficult choices about managing the tradeoff of technology sharing and access to the world’s second-largest economy,” the trade group wrote.
There was some dissent. Mark Cohen, then the U.S. Patent and Trademark Office’s senior counsel for China, who had long experience in the country, criticized the interagency effort for relying too much on anecdotes and not insisting on data to show whether China was an outlier in protecting intellectual property. Although Chinese data is suspect, he says now, it could be used to see whether certain technologies get heavy subsidies or how China stacked up against other countries in granting patents. The report was “a data-free zone,” says Cohen, who says he resigned in disgust in April 2018.
The White House ran interagency sessions to examine different ways to discipline China, including cutting off Beijing’s access to advanced U.S. technology. But with the president regularly pressing his staff to “bring me tariffs,” it was clear to most everyone what the outcome would be. Council of Economic Advisers chairman Kevin Hassett analyzed the economic loss to U.S. companies from forced technology transfer—the heart of the Section 301 complaint—and arrived at a $30 billion figure and presented the research to the president. “We gotta make the number bigger,” Trump told him. He wanted to double what Hassett found. But that wasn’t so simple. Administration lawyers worried they could lose a lawsuit if the tariff penalty seemed arbitrary.6
Hassett went back to his spreadsheets, updated the information, and came up with a figure of $48 billion, which the trade representative’s office rounded off to $50 billion. Trump never seemed to notice—or care—that the number was still smaller than what he wanted. When he announced the Section 301 report on March 22, in the White House Diplomatic Reception Room, he said that tariffs on China “could be about $60 billion.” To boost the numbers higher, he repeated the demand Lighthizer had given Liu He earlier in the month. “I’ve asked them to reduce the trade deficit immediately by $100 billion,” Trump said. “It’s a lot.”
The threat of tariffs captured the headlines. But the heart of the Section 301 report was ultimately more important. The United States was filing a brief accusing China of being the world’s biggest trade criminal and providing evidence of Beijing’s crimes. Under U.S. law, the United States didn’t have to prove the case; it could judge China and punish it. The 215-page document alleged that China sought technological dominance and either stole U.S. technology through cyber espionage or old-fashioned theft, or pressured U.S. companies to give up their technology through joint ventures, regulatory reviews, antitrust investigations, licensing requirements, and other means. 7
The report cited Beijing’s “Made in China 2025” report 114 times, treating it as a kind of Chinese confession of guilt. “In comparison to previous plans, ‘Made in China 2025’ expands its focus to capturing global market share, not just dominance in the China market,” the report said. It also listed ten instances where Beijing pledged to halt coercion of U.S. companies over technology between 2010 and 2016, but failed to do so. Despite the gravity of the charges, the report was consciously written in unemotional language with no obvious sound bites. About as close as the report comes to quotable material are sections like this: “Ultimately, China’s acts, policies, and practices that require or pressure technology transfer undermine U.S. companies’ valuable IP [intellectual property], weaken their global competitiveness, and stunt investment in innovation.” Hardly a call to arms.
The report was meant to convince by an accumulation of facts, testimony, and anecdotes. Its audience was U.S. industry, which wanted action on China, but which opposed the administration’s resort to tariffs; U.S. political and opinion leaders; and other trading nations, which the White House hoped would back American actions. Convincing the public that China was up to no good was the responsibility of the president and other policy makers, who could use the Section 301 report as a resource.
On the morning the report was released, Lighthizer tried his best to explain the administration’s rationale for acting. “I think at the end of the day, no matter what I do and what you do during your career, China is still going to be a market-driven Communist country. It’s never going to be like us,” he told Senator Ron Wyden, an Oregon Democrat, at a Senate Finance Committee hearing. “There are some areas that you just have to protect yourself from them.” Tariffs would help provide that protection, Lighthizer believed.
In Beijing, the report and the threat of tariffs drew swift condemnation and started a war of words. Within twenty-four hours, China said it would retaliate with levies on $50 billion of U.S. imports. Trump upped the ante, threatening tariffs on another $100 billion of Chinese goods—$150 billion in all. Not to be outdone, China’s Commerce Ministry said, “China is fully prepared to hit back forcefully.” The trade war was on, or at least the threat of a trade war. The United States needed time to prepare the list of Chinese goods subject to tariffs, giving the two sides several months to try to negotiate a settlement. The adversaries were getting ready to land blows, but as happens in many a schoolyard battle, they also were looking for a way out.
Beijing studied the U.S. trade fight against Japan in the 1980s and 1990s for lessons in dealing with Washington. Like Japan, China could try to deescalate the fight by giving in to the United States somewhat and lowering tariffs and opening its markets further, the leadership concluded. But Beijing rejected some Japanese tactics. Tokyo, which depended on Washington militarily, never retaliated against U.S. sanctions. That passivity wasn’t for China, which viewed itself as a rising power that would eventually challenge the United States. China’s days of kowtowing were over.
In a closed-door economic forum, China’s former Finance Minister Lou Jiwei said America had treated Japan like its mistress back then and ordered it to do whatever it wanted. China was more like a wife, he said, who should be treated with more respect and who is entitled to fight back against a bullying spouse. His message would be repeated over and over again when Chinese officials met with their American counterparts: China is an equal to the United States and it won’t yield to pressure tactics. Back off, buddy.