Last week, the U.S. fired the latest shot in its trade war with China, revealing a list of tariffs that it could slap on $200 billion worth of Chinese goods. While China has, to this point, been matching U.S. tariffs dollar-for-dollar – both countries instituted tariffs on $34-billion of items in June — if the U.S. forges ahead, China will have to use a different, and more damaging, set of weapons.
1. Stop buying U.S. Treasurys
China is one of the largest holders of U.S. Treasurys, owning about $1 trillion of bonds in 2017, according to the Federal Reserve. Like most investors, it wants to stash greenbacks in something safe and U.S. bonds are still solid investments. However, if the Chinese government gets pushed too far, it could decide to sell off its holdings or stop buying new U.S. bonds — and that could have a significant impact on the U.S. economy. “It’s the nuclear option,” Hooper said.
2. Devalue the yuan
If China really wants to annoy President Trump, and make tariffs moot, it could devalue the yuan. In fact, this might be the best tool it has to get back at the U.S. “Currency is the most effective lever to offset the impact of tariffs,” said Salman Baig, a multi-asset investment manager at Unigestion, a Geneva-based investment firm.
3. Make life harder for U.S. companies
The Chinese government has a lot of sway over its people. If it wants its citizens to stop traveling to the U.S. or to quit buying American goods, it can make that happen, says Gerardo Zamorano, director of Brandes Investment Partners’ investments group. When South Korea agreed to host a missile defense system, Korean car companies lost market share in China. In 2016, when people in Hong Kong began protesting for more independence from China, tourism to the country from China dried up. The Chinese government didn’t introduce any new rules banning people from buying cars or visiting Hong Kong, but Chinese citizens stopped supporting these countries anyway.
4. Isolate the U.S.
China can play the waiting game — President Xi Jinping plans to stay in power indefinitely, which means he can take his time forging trade partnerships with other countries around the world and isolate the U.S. We’re already seeing China court Europe, while Canada and China have had trade talks, too.
Reference: CNBC
Read More: https://www.cnbc.com/
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