China won’t concede under trade war threat
Anthony Scaramucci, one of Donald Trump‘s closest advisors, told the BBC that if China chose to retaliate when the Trump administration imposed punitive tariffs on imports, it would cost China “way more” than it would cost the US. Scaramucci downplayed China’s ability to respond to a US-initiated trade war. He said the current trade relationship was “more favorable to China than us” and claimed that the US imposing tariffs on imports was a “move for fairness.”
During his election campaign, Trump threatened to impose a 45 percent punitive tariff on imports from China. Since he won the election, he has not mentioned it. It seems that he uttered such words hastily, and he is not entitled to do so anyway according to US law. However, on multiple occasions, the Trump team has put pressure on China and requested that China make concessions.
Chinese President Xi Jinping said in a speech in Davos that no one would emerge as the winner in a trade war. This stance toward international trade is echoed by most people around the world. However, China will not sit still in the face of a trade war. If the Trump administration imposes punitive tariffs on Chinese goods, China will not hesitate to take revenge.
The Chinese trade surplus with the US is not a result of unfair trade policies. The US trade deficit with China is due to strong complementarities in bilateral economies. Meanwhile, the commodities produced in China by American companies make up a large portion of Chinese exports to the US. If the US lifts the ban on exports of key high-tech products to China, it will be a major impetus to US trade with China.
As the US has a stronger economy, China may suffer more losses than the US once a trade war starts. But China will take the US on to the end. There are few cases in modern history where only one party surrendered in a trade war; rather, the two parties ended up compromising with each other. How could Trump’s team believe China would surrender without any countermeasures?
The arrogant Trump team has underestimated China’s ability to retaliate. China is a major buyer of American cotton, wheat, beans and Boeing aircraft. Hundreds of thousands of Chinese students go to the US to study every year, which boosts the prosperity of the US education sector and is not counted in trade between the two countries.
Since it is the US that would trigger a trade war, it is appropriate for China to fight back. Chinese society has more capability to bear the losses than US society. It is naïve for the Trump team to believe that they won’t bear any consequences in a trade war.
China is carrying out supply-side reforms. The US should also expand supplies to China. If Washington sells two fleets of nuclear-powered aircraft carriers to China, Sino-US trade will balance a lot. Will Scaramucci suggest this idea to his boss?