A long trade war could threaten Communist Party legitimacy: Don Pittis

China has short-term advantages as Trump faces re-election, but a long decline in the Chinese economy could shatter the party's social contract with its people that keeps the Communist Party in power.

Looming U.S. election offers China short-term clout but it faces long-term dangers

Young people dress up to to celebrate the spirit of the Long March in the mountains of China's Jiangxi province. Chinese President Xi Jinping invoked the 1934 event as an analogy for winning its trade war with the U.S. (Thomas Peter/Reuters)

If Canada did not have so much at stake in the U.S.-China trade battle, it might be fun just to rubberneck from the sidelines.

But as stock markets and oil prices teetered last week and financial commentators worry about China destabilizing the global economy by selling off its trillion dollar stake in U.S. Treasury bills, it's hard to be complacent.

Canadian relief that we are no longer the butt of Trump's trade taunts is tempered by the knowledge that the newly promised $21-billion ($16-billion US) subsidy for U.S. farmers is bound to distort Canadian agriculture exports in unpredictable ways.

And China's trade attacks on Washington seem to have offered little comfort to Canadians suffering from retaliation for the house arrest of Huawei executive Meng Wanzhou in a U.S. extradition manoeuvre.

Sometimes it seems there is little good to choose between the cesspool of current U.S. politics and Beijing's authoritarian posturing, but with Canada caught in the middle, it is essential for Canadians to try to see through the combative statements of each side to the realities beneath.

In the case of China, President Xi Jinping has invoked that touchstone of Chinese Communist Party history, the Long March, when starving Mao Zedong loyalists retreated to the mountains to escape Chinese government forces, famously accompanied by Canadian doctor Norman Bethune.

"Today, on the new Long March, we must overcome various major risks and challenges from home and abroad and win new victories for socialism with Chinese characteristics," Chinese official media quoted Xi as saying.

The message to Chinese people, repeated by many lesser officials: Prepare yourselves for a long trade battle that may involve pain on the way to triumph.

Last week, U.S. President Donald Trump promised billions to U.S. farmers to help them cope with the trade war, but he may be forced into trade concessions to help him win the 2020 election. (Carlos Barria/Reuters)

U.S. President Donald Trump, meanwhile, has warned of the dangers of Chinese tech giant Huawei as just one example of the Communist Party's risks to Western security.

Despite the evident damage to the economies of Canada and other allies, the U.S. administration has insisted that Huawei and its ilk are a security risk, demanding that we end commercial relations with the company, while using existing legal agreements to compel Canada to arrest the Huawei executive.

Huawei just a bargaining chip?

But just as Canadians lined up to either support our long-time ally or scoff that Huawei isn't any worse at prying than any other tech giant, Trump has revealed that it is all just a bargaining chip.

"It's possible that Huawei even would be included in some kind of trade deal," said the U.S. president at the end of last week. "If we made a deal, I can imagine Huawei being included in some form or, some part, of a trade deal."

The Trump statement seems to confirm something long-time China-watcher Steve Tsang told me on the phone from his office at the University of London's School of Oriental and African Studies.

Tsang's contention was that Xi's Long March comments seem to imply that China can wait it out while the U.S. needs to settle quickly due to the demands of the election cycle. The idea that the U.S. would toss its long-term opposition to Huawei onto the bargaining table to seal a speedy deal may be evidence that is true.

But Tsang's analysis turns that seemingly self-evident notion on its head.

"Somebody really needs to give President Xi a bit of a history lesson," said Tsang. "Using the Long March is a very unfortunate way to inspire the country. The Long March was full of enormous mistakes that nearly killed the Communist Party off."

A carving of Chinese Communist leaders Mao Zedong and Zhu De at a historic site of the Long March, but the celebrated retreat nearly led to the collapse of the Communist Party. (Thomas Peter/Reuters)

Besides the unhelpful analogy, Tsang believes the concept that China can wait out a long trade war because China is not a democracy, and that its people are willing to endure, or "eat bitterness" as the Chinese expression goes, is simply false.

While this U.S. administration may be in a rush to get a deal to help Trump win an election in 2020 that has essentially already begun, the U.S. economy and its political system is well placed to sustain a long trade fight, whether Trump wins or loses.

"The advantage that Xi Jinping has — that he doesn't have to deal with the electoral cycle — becomes pretty much irrelevant because the party has to continue to deliver the goods to the people in China and the companies in China," said Tsang.

He said there is no question that over time, the growing sophistication of the Chinese economy will allow it to create the essential goods, such as sophisticated microchips, that it now must import. But Tsang said such an import substitution process will take more time than the Communist Party has.

Essentially, the reason Chinese people continue to support the autocratic government, setting aside demands for more democratic reforms, is that people have exchanged those demands for a steadily increasing standard of living.

While Chinese people remain loyal to the country, Tsang said Xi is overestimating their willingness to suffer for the sake of Communist Party policy.  

Once a lengthy trade battle begins to bite into economic growth, leading to a Chinese recession, all bets will be off and the party's legitimacy as the sole voice of correct thought will be jeopardized.  

"If the trade war gets entrenched, the party will not be able to deliver their side of the bargain in the social contract put in place since the end of the Tiananmen massacre," said Tsang, referring to the 1989 democracy protests that were brutally crushed.

"And that is a potentially existential threat to the Communist Party."

Follow Don on Twitter @don_pittis


Don Pittis

Business columnist

Based in Toronto, Don Pittis is a business columnist and senior producer for CBC News. Previously, he was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London.