The View | Why a tit-for-tat strategy won’t work for China in the trade war with America
Chen Zhao says Beijing should think twice before taking populist retaliatory measures against Washington. Instead, it should focus on increasing domestic spending
The US and China are on a collision course. The bilateral trade imbalance was the key issue in the US-China trade dispute, but Washington is now after Beijing’s economic model. Trade hawks in the Trump administration want to punish China for its industrial policy, technology transfer requirements or simply, its “bad behaviour”.
The Chinese government now regards the US trade threat as a blatant attempt to deny China’s right to a “peaceful rise”. Meanwhile, as China-bashing becomes politically popular, US President Donald Trump is unlikely to ease up on Beijing before the November midterm elections. The trade war will probably get much worse before it gets better.
Beijing has been on the defensive, even though it sounds defiant. This has much to do with the fact that the trade dispute is asymmetric warfare. For decades, China has acted as the key supplier of consumer goods to the US, where consumers have been the buyers of last resort. Thus, a trade war between the two countries is like a fight between suppliers and customers.
For American consumers, higher tariffs mean a one-off increase in import costs, a small price to pay in a high-income economy. But for Chinese suppliers, the adjustments could be much more painful and deflationary, involving liquidations, potential factory closures, job losses and ultimately, falling incomes.
Trump’s pressure tactics have angered many Chinese, and some suggest China should use currency devaluation to fend off the impact of higher tariffs. Others propose that China should sell its holdings of US Treasury bonds to retaliate. This could do more harm than good to the Chinese economy, in my view.
