A common maxim of trade wars is that the best retaliation is not to retaliate at all.
Such conflicts, after all, are counterproductive in the first place. Raising levies on imports simply increases costs for domestic consumers, more than offsetting the benefits that local producers might enjoy from the higher prices they receive from the shift in spending. The best solution is just to stand aloof from this contest of economic self-harm, however much you are provoked.
That is the case with most economies, but China, which has announced a 84 percent import tax against all US goods in response to US President Donald Trump’s tariff blitz, might be a rare exception. That is because the world’s biggest manufacturer has spent decades building an economy that is already largely proofed against blowback from its own trade practices.
Consider the main items the nations trade with each other. The major products that the US imports from China are mostly things you would find in a Walmart Inc, at a shopping mall or on Amazon.com Inc, smartphones, computers, games consoles, furniture, toys and clothing. Slap a 125 percent tariff on these items, as Trump has done, and US consumers are going to notice pretty soon.
The flow in the opposite direction could not be more different. Most of China’s major imports from the US are intermediate goods for its manufacturing industry, which would be almost impossible for an ordinary consumer to get their hands on, such as liquified natural gas and crude oil, silicon chips and chipmaking machines, aircraft and plastics. The only real exception is cars and given the parlous competitive position of the US auto industry in China, wiping out the remnants of Buick’s, Chevrolet’s and Ford’s markets in China might almost be a mercy killing.
China tends to have quite a dominant role in US merchandise imports, making it hard for US consumers to switch to alternative suppliers. The US, by contrast, is a relatively minor supplier to China in almost every major product category except jet engines and, to a limited extent, soy, while China has broad and diverse markets for its exports if the US market ends up closed off.
This is an important consideration when you start thinking about each nation’s ability to sustain a prolonged trade war. Trump’s tariffs fall mainly on ordinary US citizens and voters who have already suffered four years of above-target inflation and are seeing interest rates at about their highest levels in nearly two decades.
The tariffs imposed by China will hurt quite a different group — businesses who are into their third year of producer price deflation, with the benchmark loan prime interest rate at its lowest level on record. Even consumer prices are falling right now.
That means China already has a decent amount of slack to accommodate the supply-side shock from tariffs, whereas the US economy is already busting at the seams.
Even if Chinese businesses start to feel economic pain as the tariffs squeeze their margins, they are less likely to complain. Alibaba Group Holding Ltd founder Jack Ma (馬雲) disappeared from public life for nearly five years after a speech in 2020 criticizing international financial regulations, which local officials appear to have interpreted as a veiled attack on their handling of Alibaba’s payments platform Ant Group Co.
For Chinese President Xi Jinping (習近平), Trump’s self-inflicted wound is an opportunity. China can present itself as a better representative of the rules-based international order than a US that did so much to establish that system, and a friendlier trade and investment partner for the 85 percent of the global economy that is not within the US’ borders. That would put dreams of supplanting the US as the world’s hegemonic power well within reach.
Both nations have been decoupling from each other since the start of Trump’s first trade war in 2018, but China has done so more effectively. As a share of its exports, the US has slipped 6.6 percentage points to 17.2 percent, whereas China as a share of US imports is down only 4 percentage points to 18.5 percent. Moreover, Xi is using this moment to build ties with other trading nations, while the Trump administration is punishing its allies with tariffs barely less savage than those it is imposing on Beijing.
If you want to avoid a future where China cements its rise with tighter links to other nations and crucial roles in blocs such as the Regional Comprehensive Economic Partnership, which includes most of east Asia’s other large economies, then the US tariff plan is the worst possible outcome. China’s economy has problems right now, but international commerce is not one of them. If the world is settling in for a long trade war, Trump’s most formidable rival has already fortified itself.
David Fickling is a Bloomberg Opinion columnist covering climate change and energy. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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