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China on Friday slammed President Donald Trump’s decision to slap a 10% tariff on $300 billion worth of goods, effectively taxing all Chinese exports to the United States. Beijing said it was ready for a fight.
China “basically has very few good options,” said Julian Evans-Pritchard, senior China economist at Capital Economics. “In terms of directly hitting back at the US, it’s quite difficult to do it without hurting themselves.”
Here’s what China could do next.
Hit Back With Tariffs
China has previously fired back with tariffs of its own on goods from the United States. But China buys a lot less from the United States than it sells. And most of the American exports China hasn’t yet targeted are high-tech products that can’t easily be substituted .
“‘China is likely to retaliate with a combination of tariff and non-tariff measures, given that it has a much shorter runway when it comes to tariffs,” said Darren Tay, Asia country risk analyst at Fitch Solutions.
Restrict Rare Earths Supply
One of China’s advantages in the trade war is its near monopoly on a group of minerals that the global tech industry can’t live without. China controls more than 90% of the global production of rare earths, 17 minerals with magnetic and conductive properties that power most electronic devices. It also accounted for 80% of all rare earth minerals imported by the United States between 2014 and 2017.
Beijing has been shoring up its rare earth industry recently and issuing thinly-veiled threats that it could curb exports of the minerals.
“That probably would have a bigger impact in the short run, but it would do a lot of collateral damage to China’s other trading partners, particularly Japan, which is the primary importer of rare earth minerals,” Evans-Pritchard said.
Devalue The Yuan
Currency depreciation could help China by canceling out the impact of new US tariffs and keeping its exports affordable in America.
But China has reasons not to devalue the yuan — a big drop in the currency could spark an outflow of money from China and hurt economic stability. Letting the yuan weaken could also boost Chinese inflation. That’s a risk at a time when the economy is already showing signs of weakness, with retail sales cooling significantly.
Make Life Harder For US Companies
The Chinese government could make life tougher for US firms by tightening restrictions on their business and adding regulatory hurdles.
Some of the biggest US companies, including Apple, Tesla, Ford and Starbucks, depend on China’s huge market for billions of dollars of revenue. Many of them have already been hit by tariffs and a broader economic slowdown in China.
But doing so could hurt its already slowing economy if companies decide to move production elsewhere — as some already have.
Source: CNN
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