On the edge of Beijing, the Fragrant Hills were alive to the sound of rhetoric last week.

Deeply symbolic, this was the scenic spot chosen as the headquarters of Mao Zedong’s Communist Party during the final phase of China’s civil war against Chiang Kai-shek’s nationalist government in the late 1940s.

It was here, in the old imperial gardens in Xiangshan, that President Xi Jinping talked about the battles of the past and the struggles of the future.

To a captive audience of CCP cadres, he “called on the whole Party and the nation to be brave,” state-media confirmed in blanket coverage.

“[We have to] engage in the great struggle and fight against all difficulties and obstacles to push forward the progress of China,” Xi was quoted as saying during a whirlwind visit to an exhibition highlighting the history of the powerful Central Committee.

Yet his comments were firmly anchored in the present as the trade war between Beijing and Washington drags on into a second year.

The fallout has already acted as a brake on China’s slowing economy, which has been engulfed by dismal data during the past three months.

In August, growth dipped again across a broad range of sectors, from retail sales to industrial output, which plunged to a 17-year low. Big-ticket items such as new car sales have stalled while residential property prices have also suffered as consumer debt increases.

Moreover, this comes at a time when Xi’s government is realigning the state-backed model towards high-tech manufacturing and services, underpinned by a consumer-driven economy. Consumption, not cheap, low-value exports, is crucial to Beijing’s blueprint.

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But the trade conflict has thrown a spanner in the works, fuelling frustration and anger inside the CCP.   

“The ultimate purpose is that the US wants to ruin China because the US is unwilling to accept China as a rising power and does not want [a] ‘new relationship,’” Wei Jianguo, the former deputy head of the Ministry of Commerce, said.

He then went on to predict that the dispute could turn into an economic Cold War lasting “for 30 or even 50 years,” in remarks published on the China International Economic Exchange Center website.

“By mounting maximum pressure on China, the US launched an all-out attack, but it didn’t work. In order to conclude a successful agreement in which both sides are satisfied, concessions and compromises by either side are indispensable,” Wei, who is now the secretary-general of the Beijing-based think tank, said.

Mid-level talks will resume in Washington later this week after Xi and US President Donald Trump dialed down the volume. The White House also delayed a planned hike in tariffs on Chinese imports worth US$250 billion until October 15 as a “gesture of goodwill.”

They were due to kick in on October 1, an auspicious date with the People’s Republic of China celebrating its 70th anniversary. In response, Beijing agreed to increase US imports of farm produce such as soybeans and pork.

Last week’s thawing of relations has helped change the mood music and pave the way for major negotiations earlier next month. Of course, that will depend on how Thursday’s discussions pan out.

“Both sides are feeling the pain now. So an interim deal could be done, but if they’re looking for a comprehensive deal … that will be very hard,” Stephen Kho, the former acting chief counsel on China enforcement at the Office of the United States Trade Representative, said.

To retrace the road to economic purgatory, the row began over America’s soaring trade deficit with China. So far, it has not led to a significant reduction. In 2018, the US deficit was $419.52 billion.

Cyber spying

Since the opening salvos, other issues have overshadowed dollars and cents.

Intellectual Property theft, forced transfer of technology, cyber spying and even Beijing’s state-run model have come under the microscope. Also, there is the thorny problem of enforcing any subsequent “agreement.”

For team Trump, this is a red line. For Xi and senior Party officials, a bone of contention.

Judging by China’s past record, it seems a reasonable request. Others disagree.

“Tariffs are the original reason why a trade dispute arose between the two sides, and the purpose of talks is to solve this underlying problem. A final agreement that keeps the tariffs in place would be meaningless, and such an agreement would only serve to fully expose the bullying attitude of the American side,” Wu Zhenglong, of the China Foundation for International Studies, which is linked to the Ministry of Foreign Affairs, said.

“At present, [the] trade talks have entered a new stage of fighting intermingled with talking. The contest between the two sides is based not only on their national strength but also on will and patience,” he wrote for China-US Focus.

“This is an economic and trade challenge that we have never encountered before, but it is also a hurdle that China will inevitably pass on the road to national revival. China has the confidence, determination, and ability to overcome the trade frictions provoked by the United States,” Wu added after negotiations collapsed earlier this year.

Still, his opinion is in line with CCP policy. “History has proved that the [Party] and the Chinese people are capable of both breaking an old world and building a new world,” Xi said during his Fragrant Hills address.

In the meantime, the stench of the trade war lingers on.