The first punches in a trade fight that China didn’t want have been thrown, and now Xi Jinping is poised to match Donald Trump blow for blow.
The next flurry of jabs may be imminent. In his announcement of tariffs on Chinese goods on Friday, Trump vowed additional duties if China retaliated -- which Beijing immediately did. An announcement on U.S. restrictions on investments from China will follow in the next two weeks, according to Trade Representative Robert Lighthizer.
Analysts increasingly expect the confrontation to be a war of attrition as the two sides confront the chasm between them. While China has shown a willingness to make a deal on shrinking its trade surplus with the U.S., it has made clear it won’t bow to demands to abandon its industrial policy aimed at dominating the technology of the future.
The two nations moved to the brink of a trade war on Friday after the Trump administration announced new tariffs on imports would take effect from July 6. A 25 percent tariff will be imposed on $34 billion in goods imports, with further duties on another $16 billion in imports under consideration. In response, China said it would charge tariffs of the “same scale and intensity” on goods from the U.S., adding that all trade commitments made during the previous weeks of negotiations are now off the table.
Aside from slapping tariffs on American products, China’s arsenal of potential retaliatory measures is formidable, and it could inflict heavy punishment on the more than $200 billion of investment by American companies in China. Increased safety inspections and delays in approving imports are possible tools, as is consumer boycotts of American goods sold in China’s rapidly growing retail market, or stemming a flow of free-spending tourists to the U.S.
In a longer-term, worst-case scenario, there also are actions such as selling down its massive stockpile of U.S. treasuries or devaluing the yuan, moves that would send shock waves through global markets.
“The next several weeks will be critical for determining how bad the tit-for-tat gets, which will rest crucially on the relationship between the two leaders, and how they perceive their advantages," said economists including Michael Hirson, Asia director at Eurasia Group in New York. “Xi is not looking to escalate the trade dispute, but is not afraid to climb the escalation ladder with Trump."
Reference: Bloomberg
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