Sun, Apr 08, 2018 - Page 15 News List

China has the cards to call Trump’s high-stakes raise

By David Fickling  /  Bloomberg Gadfly

When a card player doubles down on a high-stakes bet, is that a sign of strength, or an overplayed hand?

That is what investors have to ask after US President Donald Trump threatened to impose tariffs on a further US$100 billion of Chinese imports.

In one sense, such a move could turn the tide of the conflict in Washington’s favor.

Reciprocating tariffs from Beijing, when added to the US$53 billion in trade that is already under threat, would max out China’s ability to retaliate through conventional means.

Chinese imports from the US have exceeded US$153 billion in only two years since it joined the WTO in 2001.

Meanwhile, the US would still be able to threaten another US$350 billion or so of trade in the other direction, thanks to its yawning trade deficit with China.

However, that assumes that China would only resort to conventional means. Recent experience suggests otherwise.

Take the experience of Hyundai Motor Co. The South Korean automaker had been the second-biggest marque in China for much of the past decade before rising tensions over Seoul’s decision to deploy a US missile shield against North Korea boiled over early last year.

With lightning speed, Chinese state-owned media and social media accounts whipped up an unofficial boycott of South Korean products.

Yang Bingyang, a former model who is known online as Ayawawa, took a break from dispensing beauty and relationship advice to call for her 2.7 million Weibo followers to join the boycott.

“I will cancel my trips to South Korea and stop cooperating with [South] Korean companies,” the state-owned Global Times quoted her as saying.

Events took an even darker turn when tensions between China and Japan ramped up in 2012 over the ownership of disputed islands northeast of Taiwan. Nationalist crowds ransacked a Toyota Motor Corp dealership and set a Panasonic Corp factory ablaze.

There are plenty of ways that China could bring pressure to bear in that way. The US is the largest investor in China from outside Asia, with about 3 percent of the foreign direct investment stock, worth about US$41 billion in 2016.

As Hyundai has learned to its cost, assets held in China can rapidly lose their value if you are in Beijing’s bad books.

The effects could be felt well beyond the usual suspects. Most US businesses with substantial revenue in China have so far been spared from the country’s retaliatory wrath, but tech companies, such as Apple Inc, Qualcomm Inc and Intel Corp, are directly in the firing line if things heat up.

Boeing Co, General Electric Co and United Technologies Corp, whose Chinese aerospace businesses have so far been largely spared, could also be targeted.

Caterpillar Inc risks getting locked out of the “One Belt, One Road” infrastructure bonanza.

Other firms could be damaged by local action that barely touches on formal goods trade.

Las Vegas Sands Inc, controlled by 2016’s biggest US conservative political donor Sheldon Adelson, does not technically export anything much to China — but if Macau authorities decided to strip away the license for his casinos that is up for renewal in 2022, the company could lose three-fifths of its revenue in a flash.

Only a few thousand of the 4 million cars that General Motors Co sells in China each year are imported from the US, but Hyundai’s experience illustrates that the locally made remainder could nonetheless be hit hard.

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