China imports only about $120 billion of goods and services from the US, so the Chinese government can’t match Trump’s new proposed $200 billion tariffs dollar-for-dollar. Of course, China doesn’t have to retaliate and continue this trade war, but egos and nationalism rule geopolitics. So, here are some ways for China to punch back and hurt the US:
- Increase the tariff rates on US goods. So, rather than 25% extra tariffs on soybeans, turn it up to 40%, for example.
- Stop buying certain US products: In 2017, China was the second largest buyer of US oil, importing 81 million barrels of oil. That’s a lot of leverage.
- Boycott Diplomacy. Just to give an idea, Nike sells $4 billion worth of shoes in China; Apple sells more iPhones in China than in the US; GM sells 4 million cars in China; and there are 3,000 Starbucks stores operating in China. US corporations earn about $480 billion per year from the Chinese market. (This retaliation strategy will be limited, since most US corporations in China have joint ventures with Chinese corporations.)
- Slow down or reject permits and licenses. Qualcomm, for example, is waiting for approval from the Chinese government for the acquisition of NXP Semiconductors.
- Devalue Yuan: Chinese currency, Yuan, has already fallen by about 8% in the last two months (from 6.27 to 6.68 Yuan per dollar). This will blunt the effects of US tariffs.
- Reduce holdings of US treasuries. Not by a lot, but just enough to send a warning shot. China has $1.2 trillion of US bonds. Maybe $200 billion of that can be sold to match Trump’s tariffs?
- Increase inspections of US imports at Chinese ports. Delay the process by a week and you can make lots of fruits and seafood go waste.
- Increase inspections in factories making American goods. Chinese officials can come up with 100 different excuses to shut down an iPhone or a Walmart factory for a day or two. Tesla also just opened a new manufacturing facility in Shanghai.
- Boycott travel to the US. about 3 million Chinese visit the US every year and spend $33 billion. They could be persuaded to visit Europe instead.
- Foreign Policy: North Korea and Iran. Now that Kim Jong Un has visited China three times in the last couple of months, Xi Jinping might just be able to slow down the US-DPRK negotiations. And how about not buying oil from the US anymore and shift to Iran, who will gladly accept Yuan? That would be a triple whammy — buy less from the US, help America’s enemy and weaken the Petrodollar.
Author: Chris Kanthan
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