Opinion | Never mind the trade war, this is how China and the US can both get what they want
The US’ concerns about China aren’t just shared by other countries, they also align with the mainland’s own goals for its future
China exports US$500 billion of goods to the United States, but imports only US$150 billion. US President Donald Trump figures that a trade war against China is easy to win, as it would quickly run out of equivalent retaliatory tariffs and would soon have to buckle to US demands.
However, 85 per cent of the Chinese products hit by initial Trump tariffs are machinery and components used by manufacturers in the US. As for consumer goods, Americans will struggle to cope, not just with increased costs of substitutes but their availability. China is not exactly running out of retaliatory ammunition. The US has a US$38.5 billion trade surplus with China in services. If pushed into a corner, China may well put pressure on US banking, professional and other service businesses on the mainland.
It also holds US$1.2 trillion of US treasuries. While it is not feasible to dump them without hurting itself massively, China may well decrease its holdings gradually. Much of the slack can initially be offset by other investors, but in an era of rising interest rates, this redress may be limited, putting pressure on the US economy.
I’m ready to put tariffs on every import from China, Trump warns
China controls 90 per cent of global supply of rare earth metals. These are vital to a variety of industrial sectors including health care, energy, electronics, and defence. Decreasing supply to US companies could cause massive disruptions.
China appears capable of weathering this storm, as the US accounts for 19 per cent of its total exports and their value represents only 3 per cent of China’s economy, which has shifted more to services and consumption.
Nevertheless, market economists reckon that every US$100 billion of imports affected by tariffs would reduce China’s economic growth by 0.1 to 0.3 percentage point. A broadly similar reduction of US growth is also expected.
Full-blown tariffs of US$500 billion would thus shave off 0.5 per cent to 1.5 per cent of China’s growth. As the US tussles with other trading partners, it is likely to be hit harder. It would also hurt more US jobs than it helps.
