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Weapons of trade war: What might China have up its sleeve?
BEIJING, July 7, 2018 (BSS/AFP) – The first shots have been fired in a
trade war between China and the United States that experts say could be
damaging for the world economy.
The two superpowers on Friday imposed tit-for-tat tariffs on billions of
dollars of cross-border trade.
While US President Donald Trump has brushed off warnings that trade
frictions with powerful partners like China could harm the US, Beijing has
other weapons in its arsenal beside tariffs to cause damage in a fight.
– Cruising for a bruising –
Tom Cruise films, Starbucks coffee, the iPhone X and the Buick are all
best-sellers in China and authorities could find all sorts of ways to make
life difficult for them, says Louis Kuijs, Asia analyst at Oxford Economics.
China “has less ammunition left in terms of imposing tariffs but history
shows that there are various other measures it could take to inflict pain on
US companies,” said Kuijs.
He cited “scaled-up health, safety and tax checks, delaying the import of
goods and boycotts of US goods.”
Chinese port officials have already started upping inspections of American
pork and cars, causing severe delays.
– Buick boycott –
General Motors now sells more cars in China than it does in the US — and
many other iconic American brands now derive a large proportion of revenue
from the fast-growing Chinese market.
China could either tie up these firms in red tape or encourage an effective
boycott by Chinese consumers, experts said.
Mark Williams, chief Asia economist at Capital Economics, said Beijing
could arrange a “propaganda campaign, which allows officials to remain at
arm’s length from the resulting disruption to sales.”
“In the past, these have proved both effective and fast,” said Williams,
noting that similar campaigns against South Korea and Japan at times of
political tension “led to 50-percent falls in car sales by those countries’
firms in a single month.”
Last year, Chinese consumers suddenly turned against South Korean retailer
Lotte, which was forced to shut three-quarters of its shops in China after
providing Seoul with land to deploy an American anti-missile shield that
Beijing opposes.
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– School’s out –
China may start limiting the number of big-spending tourists and its
350,000 students that head to the US each year, which would have a big impact
on the American market.
“Chinese spending on travel and education in the US is similar in size to
its spending on US soybeans and aircraft — the two largest goods purchases,”
said Williams.
China has previously limited tour groups to pressure Taiwan and South
Korea, noted the expert.
However, he added: “China may feel that US universities have limited
leverage over the Trump administration and limiting student numbers could
undermine efforts to upgrade China’s technical and scientific capabilities.”
– Boeing blow-out –
Boeing sells a quarter of its planes in China, the second-biggest market in
the world, and the US aerospace giant is neck-and-neck with European rival
Airbus.
This could be another pressure point, as most Chinese airlines are under
state control with their orders strictly piloted by Beijing.
Even though orders are planned for the next five years, nationalistic
state-run tabloid Global Times has already sounded a warning, saying Beijing
could “adjust the sales volumes.”
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– Debt and devaluation –
With its enormous currency reserves, China holds some $1.2 trillion in US
treasury bonds and officials have reportedly started to slow or halt their
purchases.
While some see this as a powerful bargaining chip with Washington, it is a
double-edged sword for Beijing as dumping the bonds would cause self-
inflicted losses.
Another weapon at Beijing’s disposal is the yuan, tightly controlled by the
central bank, which it could depreciate to bolster exporters.
But again, this could be a self-inflicted wound since it might provoke
sizable capital outflows out of China.
Julian Evans-Pritchard from Capital Economics said: “While a weaker
currency could offset some of the economic damage done by US tariffs, the
wider risks to financial stability would not be worth taking.”
– Korean co-operation –
If economic weapons don’t work, Beijing could turn to politics. Trump
relies heavily on Chinese cooperation to rein in the nuclear ambitions of
North Korea’s Kim Jong Un — especially in terms of maintaining sanctions.
Trump may suddenly find China less accommodating on this explosive dossier
if the trade war expands.
BSS/AFP/HR/0922