China can turn adversity of US trade war into spur for industrial upgrading, modernization
US President Donald Trump’s latest round of tariffs on China, which took effect on Monday, brings the amount of Chinese goods hit by US protective duties to about $250 billion, roughly half of China’s annual exports to the US.
Trump’s list of protective duties ranges from vehicle parts to some labor-intensive consumer goods. If China takes retaliatory action, the US said that it will “immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports.” But it’s impossible that China will bow to US pressure and not fire back.
China doesn’t want a trade
dispute with the US, but it must be prepared for the worstcase scenario if Trump drags the two economies into an allout trade war.
The trade conflict can affect the US economy in several ways. The US network NBC News reported that “new car prices are beginning to rise, and auto exports are dropping.” Further, as more consumer products get involved in the trade conflict, US shoppers face the prospect of higher prices for everyday goods. The impact of the escalating trade war between the world’s two largest economies is already being felt.
As for China, US tariffs on consumer products are likely to put intense pressure on Chinese labor-intensive industries, which are already having a hard time amid rising labor costs. Although China is still perceived as the world’s factory, the textile industry and some other labor-intensive sectors have been gaining ground in Southeast Asian countries. The China-US trade row is likely to speed up industrial relocation from China to Southeast Asia.
This industrial transfer will put pressure on China’s economy, but no one can stop the trend of globalization, in which labor-intensive manufacturing constantly shifts from mature
economies to regions where the labor costs are lower.
The trade conflict, which will accelerate the transfer of manufacturing, means China can’t avoid industrial upgrading. The country must pay more attention to its economic transition to high-technology industries, including goods with high added value and proprietary intellectual property rights.
China has started taking defensive measures to facilitate its industrial upgrading. In August, South China’s Guangdong Province released a plan calling for 150 billion yuan ($21.8 billion) worth of investments annually in strategic and emerging industries during the 2018-20 period.
China’s rise as an economic power has been accompanied by external pressures and setbacks, but Chinese people are good at turning adversity into an advantage and making such pressures a driving force for progress. As the trade conflict with the US puts pressure on China’s low-end industries, it’s also an opportunity for China to upgrade its manufacturing ability and move up the value chain.