Looming US China trade war – What can China do?

China’s share of global trade has surged since the 1990’s with both exports and imports increasing significantly – see graph below. Exports have been on a steep rise since 2001 with only a slight plateau with the GFC in 2008-9.

On Friday Donald Trump signed an order to impose tariffs on as much as $60 billion worth of Chinese imports. Trump wants to punish Beijing what he said is “the theft of American technology and Chinese pressure on U.S. companies to hand it over.” This deficit is significant – largest deficit of any country (see graph) – and Trump is blaming the US China trade imbalance for the loss of jobs in the US. This is an area that Trump focused his attention on in his campaign and now he is trying to fulfill the rhetoric.

Source: National Australia Bank

China has already warned that it will take “all necessary measures” to defend itself, raising the prospect of a trade war between the world’s two biggest economies. China has a few retaliatory measures it could use:

Soyabeans – US or Brazil?
The United States exported more than 30 million tons of soybeans — worth more than $10 billion — to China last year, over 57 percent of total U.S. exports of the popular legume. The soybean industry is heavily subsidised by the US government and this allows them to dump their produce on the Chinese market below the Chinese market price. China could look to Brazil for soy.

Boeing or Airbus?
Boeing make over 50% of commercial aircraft operating in China. Last November they signed an agreement to sell 300 planes to China worth $37 billion. This order supports approximately 150,000 jobs. In future China could look to the European plane manufacturer Airbus.

Sorghum
Earlier this year Trump imposed the following on Chinese products:

  • 20% tariff on the first 1.2m imported large residential washers in the first year, and a 50% tariff on machines above that number.
  • 30% tariff will be imposed on imported solar panels

In retaliation China has launched an anti-dumping and anti-subsidy investigation into imports of the grain from the US. China is the top buyer of US sorghum – US provided 4.76 million of CHina’s 5 million metric tonnes of sorghum imports – US1.1bn. China could retaliate after its investigation wraps up, expected next February.

Apple
China is a major market for the iPhone maker. Apple also depends on China’s workforce to make most of its products. As a result, China’s government has enormous leverage over the company and could, as it has in the past, target Apple for violating Chinese consumer rights.

General Motors
The Chinese market is imperative for GM – China has been the largest retailer for the last 6 years. 4 million cars were sold in China last year, up from 4.4% from the previous high a year earlier. Chinese automakers like Geely and BYD are competing for market share, though, and China could make it more difficult for both GM and Ford to operate on Chinese soil. In late 2016, China fined GM’s China joint venture $29 million for “price fixing,” or setting minimum prices for certain Cadillac, Chevy and Buick models.

Source: 5 Ways China May Try To Win A Trade War With The U.S.

Leave a Reply

Your email address will not be published. Required fields are marked *