Since the US-China trade talks collapsed two weeks ago, Trump has ratcheted up the economic war against China. In the latest move, the US government put Huawei on the “entity list,” thereby virtually stopping all US companies — hardware and software — from supplying any components to Huawei, which spends about $11 billion a year on American products. US elites are basically putting a gun to China’s head to force a new deal.
However, this hubris and overconfidence ignores the fact that China has a lot of leverage over the US economy and corporations as well. Here are some ways China can retaliate and even totally wreck the US economy:
Targeting Apple: Huawei is a $100 billion company, while Apple’s revenue is $265 billion and its market cap is close to $1 trillion. Virtually all of Apple’s products are assembled in China. A lot of the iPhone parts are also now designed and made in China (by Chinese companies). Finally, Apple gets 20% of its revenue — amounting to $50 billion — and 25% of its profits from Chinese consumers.
So there are numerous ways China can cripple Apple. Shutting down Apple’s factories even for a few days will crush Apple’s stocks and the entire US stock market. Shut down the factories for a month, Apple may never recover again.
Targeting US Retail Stores: The US gets 40% of all apparel, 50% of furniture, 70% of appliances, 72% of footwear, 75% of toys, 80% of shoes, 85% of travel goods and 90% of smartphones/computers/electronics from China. Go to Walmart or any other store and see how many goods are made in China. If China places an export ban for a few weeks, all the retail stores in America will have empty shelves and there will be riots all across the US.
Out of the $500 billion of Chinese goods we import, China is the dominant supplier for $350 billion of those goods. For these goods, China accounts for anywhere from 50% to 100% of the imports. It will take years to shift manufacturing to other countries.
Pharmaceuticals: 50% of prescription drugs in the US are made in China, including antibiotics and vaccines. Hello? Should I explain how much leverage this fact gives China? As these experts say, “If China cut its supplies now, ‘Surgeries would be canceled, cancer treatments halted, kidney dialysis rationed, and infections would spread.'”
Rare Earth Minerals: Everything from MRI machines to touch screens to fighter jets to electric cars need rare earth minerals. Currently China controls 80-90% of all mining and processing.
Four days after the Huawei ban, Xi Jinping visited China’s largest rare earth minerals company, sending a clear message to Trump!
US Corporations in China: American corporations make about $400 billion in revenue every year through subsidiaries in China. (And, no, this number isn’t included in “trade deficit”, a number that’s Trump is obsessed with). Name any major US company and it will have a huge presence in China.
GM manufactures more cars in China than in the US; Boeing has sold 1000 planes to China in the last five years; Starbucks has 3,500 stores in China and is opening up two new Chinese stores every day; McDonald’s has 3000+ stores; KFC and Pizza Hut have 8000 stores in China; Hilton, Marriott and other major US chains have 1000s of hotels in China; and American Express, JP Morgan, Discover Card, Goldman Sachs etc. all operate out of China and make a lot of money.
Thus, China can find some excuse to shutdown some or many of them to cause severe pain in the US economy.
Trump’s bullying of Huawei may take a few months to cripple the company, but China can cause havoc in the US within a few days or even hours. Imagine if there’s a news that three Apple’s factories caught fire “accidentally” at the same time. That’s enough to make Wall Street crash.
Trump is playing with fire. Arresting Huawei’s CFO (Meng Wanzhou), placing export ban it etc. are Mafia-like tactics. I don’t know how long Xi Jinping and the CCP leadership team will be patient. For them, this is just 1840 redux — replay of the British and the French “opening up” China, colonizing it, letting others (Japanese, Germans, Americans) plunder and carve it up, and destroying the country.
These are dangerous times, as I have been predicting the US-China collision for a long time.
Appendix: Some charts of China’s share in US imports.