As China and the U.S. near a trade war, both nations bring different weapons to the table. For the U.S., it's direct tariffs on the plethora of goods it imports, while for China the calculus is a little different.
China is limited somewhat in the amount of retaliatory tariffs it can apply, simply because it doesn't import nearly as much in American goods compared with what the U.S. takes of Chinese products. China imported just $129.9 billion from the U.S. in 2017, compared with $505.5 billion in exports, according to the Census Bureau.
"China is going to run out of direct reprisals quickly should it look to match the U.S. in tariffs," LPL Research said in a note. "There is also broad agreement globally that China engages in a range of unfair trade practices, which provides some moral high ground for the U.S. to demand concessions."
While the White House has been clear about where it could go — $50 billion of tariffs already announced plus another $200 billion that President Donald Trump threatened this week — China has been a little less direct. Chinese officials have threatened tit-for-tat tariffs, but eventually could run out of items to target.
"In our view, the most likely outcome is that China responds in kind by introducing tariffs or other import restrictions on US goods or services. This could be calibrated to be proportional in response to the US action," Goldman Sachs economists Alec Phillips and Andrew Tilton said in a research note earlier this year on the potential implications of a U.S.-China trade war.
The Goldman analysis set out an additional menu of options outside simple tariffs that China could employ.
They include action against U.S. companies operating in China such as boycotts against Apple or Google parent Alphabet, currency devaluation, selling U.S. assets, Treasurys in particular, and changes on geopolitical issues, such as easing sanctions on North Korea.
Reference: CNBC
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