China has options for tariff response
BEIJING — In his trade war with China, President Trump wields one seeming advantage: The United States could ultimately slap tariffs on more than $500 billion in imported Chinese goods. Beijing has much less to tax: It imported just $130 billion in U.S. goods last year.
Yet that hardly means China would be powerless to fight back once it ran out of U.S. goods to penalize. It possesses a range of other weapons with which to inflict pain on the U.S. economy.
Indeed, China’s Commerce Ministry has warned of “comprehensive measures” it could take against the United States — from harassing automakers, retailers or other American companies that depend on China to drive revenue to selling U.S. government debt or disrupting diplomatic efforts over North Korea.
Some of those steps might hurt China’s own interests. But Beijing might still be willing to deploy them, at least temporarily, if its trade war with Washington were to drag on.
On Friday, Washington imposed its first tariffs in response to complaints of Beijing stealing or pressuring companies to hand over technology. China swiftly announced retaliatory tariffs on a similar amount of U.S. goods.
A look at some of China’s options:
• TARGET AMERICAN COMPANIES: China’s statedominated and heavily regulated economy gives authorities an arsenal of tools to disrupt U.S. companies by withholding licenses or launching tax, anti-monopoly or other investigations.
Also open to retaliation are services such as engineering and logistics in which the United States runs a trade surplus.
• FINANCIAL LEVERAGE: Nationalists point to China’s $1.2 trillion holdings of U.S. government debt as leverage. Beijing might suffer losses if it sold enough to influence U.S. debt financing costs — but such sales might become necessary.
China’s yuan has sagged against the dollar this year, which might require the central bank to intervene in currency markets.
To get the dollars it needs, the People’s Bank of China might “become a net seller of U.S. Treasurys,” Carl B. Weinberg of HighFrequency Economics said in a report.
“Punishing the U.S. Treasury market is one of the tactics China has available to retaliate against unilateral U.S. tariffs,” Weinberg said.
• DIPLOMATIC PRESSURE: Beijing can appeal for support to U.S. allies that are miffed by Trump’s “America first” approach and the U.S. withdrawal from the Paris climate pact.
Trump’s unilateral actions have allowed China to position itself as a defender of free trade despite its status as the most-closed major economy. That could help Beijing win over governments that have criticized Trump for acting outside the World Trade Organization.