For the better part of a year, analysts have warned about the possibility of a “miscalculation” by one or both sides in the Sino-US trade dispute.
That word became so ubiquitous in trade war commentary that it ceased to have any meaning. By the time Trump escalated things on May 5, warnings about possible “miscalculations” were generally relegated to the last paragraph – an afterthought that served as a generic hedge to whatever a given bank’s base case was.
Two weeks on, and it’s clear that mistakes were made. Both sides have in fact “miscalculated.”
Last week, the New York Times ran a piece called “How Xi’s Last-Minute Switch on U.S.-China Trade Deal Upended It“. The article was rife with speculation, but the gist of it was that Beijing overestimated Trump’s eagerness to strike a deal. That led Xi to order the sweeping changes to a draft agreement described by Reuters on May 8.
If that was the first miscalculation, the second looks to be the Trump administration’s assumption that Beijing would roll over under further pressure and not circle the wagons following the Huawei bombshell, which now looks like the economic equivalent of Pearl Harbor.
Rather than force China back to the table, Trump compelled Beijing to rally the troops. State media is engaged in an around-the-clock effort to whip the Chinese populace into a nationalistic frenzy. It’s enough to make Fox News blush.
On Tuesday, the South China Morning Post detailed remarks that suggest Xi is preparing the public for an indefinite struggle. To wit:
Chinese President Xi Jinping has called for the nation to embark on a new Long March and “start all over again”, in the most dramatic sign to date that Beijing has given up hope of reaching a trade deal with the United States in the near term.
Xi is in Jiangxi province for his first domestic tour since the escalation of the trade war two weeks ago. Jiangxi is where China’s defeated Red Army started its fabled Long March in 1934, and Xi’s choice of destination is being viewed as an effort to invoke a spirit of endurance and to rally public spirit amid rising tensions with Washington.
That, frankly, does not bode particularly well for the chances of a quick resolution.
Meanwhile, Bloomberg on Tuesday reported that Trump had been holding the Huawei ace up his sleeve “for months”. “Plans to target the Chinese telecommunications equipment maker over security concerns had been on the table for months and included possibly subjecting Huawei to economic sanctions”, Bloomberg said, citing unnamed sources, and adding that “the decision to curtail the Shenzhen-based company’s access to American suppliers unfolded quickly once trade talks broke down, setting off a scramble to implement the measures.”
The new information confirms what everyone already knew – namely that the US has never considered the Huawei situation to be separate from the trade talks. Since the December arrest of Meng Wanzhou, it’s been abundantly clear that the Trump administration intended to use Huawei as leverage. The move to effectively blacklist the company was laughably transparent in that regard. It isn’t, and never was, about “national security”.
Read more: ‘National Security’ As A Pandora’s Box
On Monday afternoon, amid a mini-panic across chip stocks that served to highlight the urgency of the situation, the Commerce Department granted Huawei a reprieve of sorts. The fact that the temporary general license authorization wasn’t included in the original announcement suggests US officials either didn’t appreciate the gravity of what they were doing, or else didn’t care. The former is a miscalculation, the latter is evidence of political and economic malpractice.
In any event, the word “miscalculation” will no longer be relegated to the “risks to our outlook” section of analyst notes. Similarly, expect “miscalculation” to find its way out of closing paragraphs in mainstream media coverage, where it recently labored alongside “however” in the service of allowing journos to close things out with a bit of obligatory foreshadowing.