How China can win Trump’s trade war


Well that escalated quickly.

Merely a week after America officially slapped tariffs on $34 billion worth of Chinese exports (with China quickly hitting back by imposing duties on $34 billion of American goods), President Trump has announced taxes on another $200 billion worth of Chinese exports.

This second round of tariffs won’t hit right away; they require a two-month review process with hearings in late August. But they show how rapidly this trade war can expand.

This creates what at first seems to be a problem for China: Beijing may soon run out of American goods to tax.

A big part of Trump’s beef with Beijing is America’s large trade deficit with the Chinese — China sends far more goods to America than America sends to China. But that trade deficit also means China will run out of imports to tax long before America does.

So what can China do? It will have to get creative — and be patient.

In 2017, America imported roughly $500 billion in Chinese goods, while China imported about $130 billion in American goods. But there’s also services: The U.S. now provides a little over $50 billion in services to China, while China does far fewer services for us. America actually enjoys a trade surplus with China on that score. But obviously that’s swamped by the trade in goods.

Trump has already slapped 25 percent duties on $34 billion in Chinese goods. And China fired back by mirroring those numbers. The new round would be a 10 percent tariff on another $200 billion in Chinese goods. At that point, America would be taxing just under half of the goods we import from China; we’d still have room to keep launching new fusillades. But with only $130 billion in goods coming in from America, the Chinese wouldn’t even be able to match the $200 billion figure, much less anything above that.

If the Chinese want to keep up the tit-for-tat strategy, they’ll have to come up with other ways of inflicting economic pain.

Bloomberg explored a few of China’s options. While China has fewer goods to tax, they could certainly just jack up tariff rates beyond the 10 percent or 25 percent that Trump is imposing. In particular, they could target things like U.S. energy exports. While China has long sought foreign energy providers to fuel its massive growth, it’s becoming more self-sufficient. In particular, if they hit American liquefied natural gas with tariffs, the Chinese could undercut investor plans to build a more robust and long-term domestic infrastructure.

China could also exploit its strong hold over the rare earth metals market, which is crucial to U.S. electronics — and especially to our military technology. If China clamped down on its exports of these materials, America would doubtless turn to other sources, or start reinvesting in its own production. But it would definitely mess with America in the short term.

China could also get very tough with American …read more

Source:: The Week – Business

      

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