Trump's trade war is hurting China's economy, but it's giving Beijing an opportunity it never dreamed of

• President Donald Trump says China is desperate to end its trade war with the US, but while China's economy is slowing, policymakers aren't acting desperate.
• There's evidence to suggest that China would rather go toe to toe with the US on trade than deal with it on more pressing domestic issues — such as Xinjiang and Hong Kong.
• "The Chinese are not trying to win," Leland Miller, the founder of Chinese business and economic survey "China Beige Book," told Business Insider. "They're trying to stall so they get the best scenario they can across the board."
• Trump's laser focus on getting a deal — instead of scaring the Chinese — is giving them an opportunity to accomplish other goals without US interference.

President Trump will tell you China is "dying to make a deal" with the US. He will tell you that Beijing is tired of paying tariffs to the US (Americans actually pay them). He will tell you that China's supply chains are breaking, and that its economy is on the verge of collapse (arguable but not certain).

"We're the ones that are deciding whether or not we want to make a deal," Trump said in a speech at the Economic Club of New York this month. "We're close."

Trump's rhetoric on the trade deal represents a gross oversimplification of China's interests. The reality of what Beijing wants is far more complicated than an end to the recent economic hostilities. Instead, it is balancing a variety of interests, some more important than the trade war.

"The Chinese are not trying to win," Leland Miller, the founder of Chinese business and economic survey "China Beige Book," told Business Insider. "They're trying to stall so they get the best scenario they can across the board."

"Across the board" means a range of domestic, economic, and national-security issues. And "best scenario" means much more than a stable Chinese economy.

Beijing's ideal scenario includes a free hand to violate human rights in Xinjiang and Hong Kong; it includes continuing to press for reunification with Taiwan; and it includes achieving the aims of China 2025, the Chinese Communist Party's plan to transition the country's economy to one based on technology.

Trump's laser focus on trade has given Beijing the latitude to deal with those and other critical issues without fear interference from the White House.

That is why some in China's community of think tanks and scholars believe that, in some ways, Trump benefits China. One former US State Department official with experience in East Asia, who spoke with Business Insider on condition of anonymity, said that, long term, there are four main reasons some in China think Trump is useful.

1. He damages alliances.
2. He damages US credibility and standing.
3. He's taking the US out of the multilateral game.
4. He's damaging long-term US economic competitiveness.

On the other hand, Trump's quixotic nature has made him a frustrating counterpart to the Chinese.

"[Chinese leaders are] at the point where Trump is so unpredictable," Miller said. "I don't buy the idea that the Chinese want him around. They would rather deal with anyone else. The deal they get from him may be better for China, but they can't trust he'll keep it. After this summer there is zero trust."

It's not the economy, stupid

Trump is correct to say that the Chinese economy is slowing down, but there is little evidence to support his assertion that Beijing is "dying" to make a deal anytime soon.

For months, Chinese economic data has been trending down, but it's only in the past few week that policymakers have slightly lowered key interest rates to keep money flowing through the economy. According to the economist Wei Yao, at Société Générale, that's because they were concerned about easier money exacerbating already high pork prices — pork is a staple of the Chinese diet, and high prices pull up inflation — and a housing bubble.

In the past few weeks, pork prices have fallen, so policymakers have said that more easing on the way. But for the time being, we can continue to expect easing measures to be incremental steps made by a leadership carefully weighing and watching the trade war — not the actions of a desperate government on the verge of bending a knee to its strategic rival.

Meanwhile, trade-war negotiations seem to have prompted the US to, for now, ease up restrictions on Huawei, the Chinese telecom company that has repeatedly drawn the attention of US officials and was accused by the Justice Department of violating US sanctions on Iran.

China has also ignored US ire over its "Made in China 2025," a plan to build up China's tech sector using methods US officials have said violate the aims of the trade war — methods that allow more state control of China's economy and encourage more intellectual-property theft. While China stopped using the phrase "Made in China 2025" in its official communiques, this week it introduced an industrial policy with the same aims.

"The main message I get from this is: We're pursuing a state-led, large firm development goal," Derek Scissors, a senior fellow and China-economy expert at the American Enterprise Institute, told the South China Morning Post. "They don't say anything about competition in here at all. The messaging is entirely consistent with Made in China 2025."

So while yes, China's economy is slowing, it is neither in emergency mode, nor dramatically changing in response to US economic concerns and desires.

Holding back the hawks

So if the trade war's effect on China's slowing economy is not the most existential threat to China, what is?

For that, look to the issues Trump is ignoring, such as Hong Kong and Xinjiang. In what has undoubtedly been a missed opportunity to stand up for human rights, Trump has been fairly silent about millions of people in Hong Kong who've been protesting to protect their autonomous political arrangement with China.

The problem for China, though, is that it seems as if China hawks in Washington are becoming bolder, regardless of the president's desire for a deal.

Congress unanimously passed a law condemning China's actions in Hong Kong and requiring an annual review of Hong Kong's political autonomy upon which the city's status as a special trade partner with the US would be contingent. The law would consider sanctions against those involved in human-rights abuses against Hong Kong citizens and ensure US visa protections for demonstrators.

But Trump already suggested in a Fox News interview on Friday that he may veto the bill because "we are also in the process of making one of the largest trade deals in history."

"In almost every facet of foreign policy — national security, human rights — the US side could make things difficult for China," Miller said. "They have massive leverage."

China, as you might imagine, was livid about the Hong Kong law and summoned William Klein, acting chargé d'affaires of the US Embassy in China, to lodge stern representations and strong protest against US Senate.

We have yet to see China stage an equal freak-out about the trade war. Just this week was saw China stage a bigger freak-out about The New York Times' stunning and sickening report about violence and genocide in China's Xinjiang province, where the government is targeting the mostly-Muslim Uighur ethnic minority.

"What the political types say ... is two things," Anne Stevenson-Yang, the founder of China-focused investment firm J Capital Research, said. "One, on economic issues, Trump can be bribed, and, two, on human rights, he leaves them alone."

So, to Beijing, trade war considered, things could be a lot worse.

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