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No easy options for China as trade war, U.S. pressure bite

Tan KW
Publish date: Wed, 15 May 2019, 05:52 PM
BEIJING (May 15): China is running out of options to hit back at the United States without hurting its own interests, as Washington intensifies pressure on Beijing to correct trade imbalances in a challenge to China’s state-led economic model.
China said this week it would impose higher tariffs on most U.S. imports on a revised $60 billion target list. That’s a much shorter list compared with the $200 billion of Chinese products on which Washington has hiked tariffs.
Washington has also turned up the heat on other fronts, from targeting China’s tech firms such as Huawei and ZTE to sending warships through the strategic Taiwan Strait.
As the pressure mounts, Chinese leaders are pressing ahead to seal a deal and avoid a drawn-out trade war that risks stalling China’s long-term economic development, according to people familiar with their thinking.
But Beijing is mindful of a possible nationalistic backlash if it is seen as conceding too much to Washington.
Agreeing to U.S. demands to end subsidies and tax breaks for state-owned firms and strategic sectors would also overturn China’s state-led economic model and weaken the Communist Party’s grip on the economy, they said.
“We still have ammunition but we may not use all of it,” said a policy insider, declining to be identified due to the sensitivity of the matter.
“The purpose is to reach a deal acceptable to both sides.”
The State Council Information Office, finance ministry and commerce ministry did not immediately respond to Reuters’ requests for comment.
Of the retaliatory options available to China, none come without potential risks.
Since July last year, China has cumulatively imposed additional retaliatory tariffs of up to 25 percent on about $110 billion of U.S. goods.
Based on 2018 U.S. Census Bureau trade data, China would only have about $10 billion of U.S. products, such as crude oil and big aircraft, left to levy duties on in retaliation for any future U.S. tariffs.
In contrast, U.S. President Donald Trump is threatening tariffs on a further $300 billion of Chinese goods.
The only other items Beijing could tax would be imports of U.S. services. The United States had a services trade surplus with China of $40.5 billion in 2018.
But China does not have as much leverage over the United States as it might seem because large parts of that surplus are in tourism and education, areas that would be more difficult for the Chinese government to significantly roll back, James Green, a senior adviser at McLarty Associates, told Reuters.
China is more likely to further erect non-tariff barriers on U.S. goods, such as delaying regulatory approvals for agricultural products, said Green, who until August was the top U.S. Trade Representative official at the embassy in Beijing.
Trade analysts say China could reward other global companies at the expense of U.S. firms, replacing for example Boeing planes with Airbus jets where possible.
But there is considerable risk for China in transitioning its retaliation from tariffs to non-tariffs barriers on U.S. companies because doing so would intensify perceptions of an uneven playing field in China and incentivise some firms to shift sourcing or investment outside the country, they say.
Trump has called for U.S. firms to move production back to the United States.
“The medium- to long-term ramifications on supply chains are being deeply underestimated. I would be severely concerned if I was China,” Robert Lawrence, a nonresident senior fellow at the Peterson Institute for International Economics, recently told journalists in Beijing, where a group from the think-tank met with senior Chinese officials.
After trade negotiations hit a wall last week and led to the imposition of new tariffs, Chinese state media has stepped up nationalist rhetoric, vowing that China won’t be bullied.
But analysts say Beijing, at least for the time being, is trying to keep the trade war from seeping into the larger political arena.
“I don’t think they see that as in their interests, and are worried that anti-Americanism becomes anti-regime very quickly,” said Green.
A weaker yuan could help mitigate the impact on China’s exports from higher U.S. tariffs, but any sharp yuan depreciation could spur capital flight, analysts say.
Chinese leaders have repeatedly said they will not resort to yuan depreciation to boost exports, and the central bank has said it will not use the currency as a tool to cope with trade frictions.
The yuan has lost just over 2 percent against the dollar so far this month as the trade war intensifies, but analysts said the depreciation is likely to be market-driven.
Investors are concerned that China, which is the largest foreign U.S. creditor, may dump Treasury bonds and send U.S. borrowing costs higher to punish the Trump administration.
But most analysts say such an action by China is unlikely as it risks starting a fire sale that would burn its own portfolio too.
China’s massive Treasury holdings totaled $1.131 trillion in February, according to the latest U.S. data.
The near-term shock to China’s economy from higher U.S. tariffs could be mitigated by increased policy stimulus to spur domestic demand.
Chinese exporters are diversifying overseas sales, helped in part by Beijing’s Belt and Road initiative to recreate the old Silk Road.
To meet its demand for raw materials, China is also seeking alternative overseas suppliers.
Chinese purchases of U.S. soybeans - once China’s biggest import item from the United States - came to a virtual halt after Beijing slapped 25% tariffs on U.S. shipments last year.
Beijing has since scooped up soybeans from Brazil.
 - Reuters
1 person likes this. Showing 28 of 28 comments


Another piece of western propaganda and wishful thinking

Of course China's interest will be hurt if it retaliate. So will the US

2019-05-15 18:12


If those westerners study China's history, they will know that China doesn't simply surrender

It will fight to the bitter end if core interest threatened

2019-05-15 18:13


US followed British Opium War model... To get concession from invaded countries.

Bad taste for the attacked host nation.

2019-05-15 21:35


This article was put up by Reuters, and Reuters traditionally following political master from US.

Why not you just watch what CCTV4 broadcast to see how President Xi responded for the first time on trade war?

Terminology used by CCTV4 now is TRADE WAR, no more Trade Conflict.
It is sign of escalation after President Xi gave his comment, meaning he already decided to step up confrontation is all aspect including military conflict.

Now you go back to Donald Duck's tweet, from no hurry to make a deal becoming wish to meet up with President Xi in Tokyo.

Why Duck want to meet up with President, and not otherwise?
What happen if President of PRC ask Duck to fly kite?

When Trade stops, War begins.
Trade war may become real war if Donald Duck cannot swallow bitter pills of defeat...

2019-05-15 21:56


Blog: US-China trade dispute likely to re-escalate after Mar 1, says Fitch

Jan 11, 2019 5:33 PM | Report Abuse

Anyone listen to President Xi numerous speeches on various auspicious occasions will know US won't succeed on their unreasonable demand.

Up to now China never admit theft of IP, and Donald Duck never prove US IP was stolen.

Making allegation is easy, to get conviction, Donald Duck must show evidence what is wrongful loss to which US company, and what is the wrongful gain by which Chinese company.

US companies are not idiots.
Some people steal your property, you make police report, or you sue them in civil case.
Qualcom sues Apple, so Apple cannot sell i-phone in China.

Tell the world WeChat did not steal from Whatsapp.
Tell the world Baidu did not steal from Google.
If they have stolen propriety rights, sue them............

2019-05-15 22:03


Why Donald Duck want to meet up with President Xi, and not otherwise?
What happen if President of PRC ask Donald Duck to fly kite?

When Trade stops, War begins.
Trade war may become real war if Donald Duck cannot swallow bitter pills of defeat...
15/05/2019 9:56 PM

China humiliated twice in Opium War I & II and gave her crown jewel (Hong Kong) to British, will not be easily defeated this time by US, if war started by US to invade China.

China, last time was the sick man of Asia.
Now is different story lah.

2019-05-15 22:05


osted by Beary Xi > May 15, 2019 10:26 PM | Report Abuse

To be honest, chinese were addicted to opium voluntarily! Britain back then just want their tea!

FU lah beary....banana?

why all from perspective of bananas?

this guy is Chinese on the inside...........

2019-05-15 22:42


Icon8888 > May 15, 2019 6:13 PM | Report Abuse

If those westerners study China's history,

its also motive and who they represent......they represent Wall Street interests....that includes Bloomberg, CNN, CNBC and all media outlets.

Never about morals, fair, justice....always about money and who is winning.......................

2019-05-15 22:45


Beary Xi > May 15, 2019 10:45 PM | Report Abuse

Hihihaha! I made Qqq angry with herself! Damn, i am so happy!

as long as Trump is President, Nanjing is not an issue....and malaysia also benefit from China.

2019-05-15 22:52


Fortunebull is a racist that pretends to be friendly to Chinese

2019-05-15 22:53


Everybody knows...

Posted by Beary Xi > May 15, 2019 10:57 PM | Report Abuse

And Icon is a black heart person pretending to be nice! He has 20 IDs to rise flags if he doesn't like you comment!

2019-05-15 22:59


I am being drawn closer to icon as time goes by.....similar in many important aspects.....

2019-05-15 23:02


Icon?? This fellow gggiillaaa already...medicine also cannot help..spend his whole day spying in many has 20 IDs?? Only Icon

2019-05-15 23:02


Haiyah, everybody knows Icon888 is KC Loh the loser...wife left him...cannot tahan...jobless fellow

2019-05-15 23:05


Last time Ah Loh working as journalist...already close shop...for years no job...always go to welfare gym to workout

2019-05-15 23:12


Don't believe Icon...bodoh...trap many of his followers in Affin...go and check

2019-05-15 23:23


mebt > May 15, 2019 11:23 PM | Report Abuse

Don't believe Icon...bodoh...trap many of his followers in Affin...go and check

u just expose yourself to be lousy trader....that is all.

2019-05-15 23:25


Don't ever think that our privacy is safeguard as long as we are using western social media. Facexxxk sold few hundred thousand of users data before Brexit referendum to Cambridge Analytica.

Read the below news though it is a bit long

2019-05-15 23:30


anyway privacy is a western concern and criminals concern............I don't give a fcuk...............

2019-05-15 23:33


mebt > May 15, 2019 11:23 PM | Report Abuse

Don't believe Icon...bodoh...trap many of his followers in Affin...go and check

u just expose yourself to be lousy trader....that is all.

too many idiots....most people in i3 just like you.

make money think people is God, lose money think people are devils.

following other people tips, .make money lose money, a lot of it is luck and timing...and not repeatable....the bodoh is mebt

point is favorable environment make money....unfavorable environment lose God no devil.....

2019-05-16 01:13


Then you think you are good, conman Icon888? You are worse than a dog.

Posted by Icon8888 > May 15, 2019 10:53 PM | Report Abuse

Fortunebull is a racist that pretends to be friendly to Chinese

2019-05-16 11:15


China Foreign Ministry has escalated Trade Conflict to Trade War.
China does not want to fight trade war.
China does not willing to fight trade war (not fighting trade war voluntarily).
China not scare to go for trade war (when compel to fight trade war).

All in all, China will mobilise all resources to fight and win this trade war at all cost.
Can no longer sign any humiliating treaty that put dignity and self respect of China like what was happened after Opium War......

2019-05-16 18:07


China will shed blood but not tears.China had suffered hardship and humiliation and can withstand again but the yankees can't!

2019-05-16 18:41


"Up to now China never admit theft of IP, and Donald Duck never prove US IP was stolen."

What IP theft ?? Like the former chairman of Morgan Stanley Asia, said " which sophisticated US multinationals are dumb enough to turn over core proprietary technologies to their Chinese partners ?" JV obviously entail a sharing of people, business strategies, operating platforms and product designs.

It is like ppl said Japanese workers give free overtime work. In reality, it is in exchange of lifetime employment. In China's case, it is in return for the successful penetration of the China market.

2019-05-16 20:05


Donald Duck finally kowtow to The President of People Republic of China.
After repeated request to meet President Xi but there was no response.
When he is so desperate and finally has to kneel down to seek audience.
Watch the compilation of events below:

Must be most cautious as Donald Duck is the most Unreliable Animal of this Planet.
He has no credibility and integrity as this duck is known to tell lies over and over.
He also will not honor what ever promise made, not flicker minded, but with intention to cheat from very beginning.
He has threatened again and again if no good deal in US favor, 300 billion worth of Chinese export to US will be taxes at 25% immediately after Osaka G20 meeting, i.e. he will issue directive from Air Force One.

2019-06-20 00:31


Who says the Us do not steal ?

Japan was the leader in semiconductors way back before Plaza Accord. After Plaza Accord was imposed on Japan, Reagan forced Japan to share its semiconductor technology with US. Now, Rubio is trying to steal Huawei's intellectual property.

2019-06-20 09:09


Latest : New Zealand told-"Stop stealing Maori kids". Now, they steal other people's children.

2019-06-20 09:12


From I am holding up US-China deal to Chinese would like to make the deal, we like to make the deal, but it has to be a deal good for everybody. No more mention about good deal only good for the US.

Donald Duck still want to cheat to buy time.
I don't trust him.
He will again impose 25% tariff after 2 months of eye-washing 'negotiation'.

2019-06-20 12:28

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