US tariffs cast a dark shadow over China's economy
March 22, 2018
News that US President Donald Trump's administration has been considering imposing tariffs on $60 billion (€48.5 billion) worth of Chinese exports to the US has been aggravating fears of an escalating trade conflict between the world's two biggest economies in recent weeks.
Trump is reportedly mulling over targeting more than 100 different types of Chinese goods. The new measures are expected to primarily target the Asian nation's technology sector, amid allegations of intellectual-property violations by China.
The US leader is expected to announce his decision on tariffs on Thursday. As the world anxiously awaits the announcement, experts are worried about rising trade tensions and their economic ramifications. "The global economy suffers from weak demand, and inevitably, trade war is one of the ways in which this demand is hit even further," said Michael Pettis, a professor of finance at Peking University.
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A wrong instrument?
Chinese Premier Li Keqiang has already warned that "no one would emerge a winner from a trade war," and said he hoped Washington would act rationally. Beijing has also repeatedly stressed that it has no intention to engage in a trade war, although it warned it would, if needed.
Pettis believes a trade war with the US would be harmful for the Chinese economy, as past experience has shown that trade contraction could be devastating for economies with large surpluses, particularly at a time when global economic demand is weak.
While the US economy may benefit from trade contraction in the short term, Pettis argues that Washington may be addressing a real problem with the wrong instruments by imposing tariffs on bilateral trade.
"Even if the US imposes tariffs, as long as the world's excess savings continue to pour into the US, and it continues to run a capital account surplus, it will have no choice but to run a trade deficit," he told DW.
In 2017, China recorded a $375 billion surplus in goods trade alone with the US. As a result, the Trump administration has raised pressure on Beijing to come up with ways to reduce that number.
China's Commerce Minister Zhong Shang, however, has accused Washington of exaggerating the trade deficit with China by about 20 percent.
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Deteriorating trade environment
Some analysts predict that in order to minimize the damage of the Trump administration's potential tariff package, Beijing may consider easing restrictions on imports from the US. "This is a negotiation," said Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis, an investment bank. "China could offer to import from the US, when they might have thought about importing from somewhere else."
Garcia-Herrero estimates that Beijing could open up its financial, automotive and pharmaceutical industries to allow more American businesses to operate on the Chinese market.
She also said that as China seeks ways to minimize the impact of trade conflict, Beijing's decisions won't set an example for Europe.
"Europe can't use the same instruments that China uses, which is a negotiation package for different industries, because Europe doesn't work that way," she told DW.
Some experts also share the view that Trump's protectionist measures could benefit the US while hurting China, as Beijing is more vulnerable to a sharp contraction in international trade.
Pettis argues that the only way to potentially avoid such a damaging outcome is to create a new trade and capital regime, which would make it more difficult to manipulate the global trading system.
However, given the current circumstances, Pettis believes that developing a new regime is unlikely.
"Unfortunately, I think we must resign ourselves to a deteriorating trade environment," he told DW.