How much ammo does China have for a trade war?

Escalating tensions with the United States may put China's trade war arsenal to the test.During a dizzying wee...

Posted: Apr 6, 2018 3:09 PM
Updated: Apr 6, 2018 3:09 PM

Escalating tensions with the United States may put China's trade war arsenal to the test.

During a dizzying week in which the world's two largest economies exchanged threats of heavy tariffs, Beijing has insisted that it's ready to wage a trade war "to the end."

President Donald Trump upped the ante late Thursday with a threat to slap tariffs on a further $100 billion of Chinese exports. That prompted the Chinese government to warn it's willing to take "new comprehensive measures" in response.

But China faces a problem: it ships far more goods to the United States ($505 billion last year) than come back in the opposite direction ($130 billion). That leaves the US government with a lot more Chinese exports to potentially target with tariffs.

If China "were to try and respond in kind, there would not be enough US goods to tariff," said Alex Wolf, an emerging markets economist at fund manager Aberdeen Standard Investments.

Have questions about China, tariffs and a possible trade war? Ask them here

Beijing already announced plans earlier this week for steep new tariffs on $50 billion worth of major US exports, including planes, cars and soybeans. But beyond those measures, it still has "many options" for responding to further US measures, said Larry Hu, a Hong Kong-based economist at investment bank Macquarie.

They include targeting the trade in services between the two countries rather than physical products. That means things like tourism and education, industries from which the United States benefits a lot more than China does.

Targeting tourism

More than half of the $39 billion US surplus with China in services comes from spending by Chinese citizens on travel to the United States and on attending American schools and colleges, according to investment bank Nomura.

China has a recent track record of using its tourists as an economic weapon.

Last year, it squeezed the economy of South Korea, which had angered the Chinese government with the deployment of a US missile defense system.

Related: Trump threatens China with new $100 billion tariff plan

The measures included an unofficial order to Chinese travel agencies to halt tour groups to South Korea. That prompted Chinese tourism to the country to almost halve within a matter of months, hurting South Korea's hotels, duty free stores and other travel-related businesses.

US companies in China at risk

China could also take another page out of the playbook it used on South Korea by making life difficult for big US companies operating in its territory.

During the tensions with South Korea, Chinese officials closed down dozens of stores belonging to Lotte, a big South Korean conglomerate. The sales of South Korean auto brands Hyundai and Kia also plunged in China as state-run media helped whip up anti-South Korean sentiment.

If Beijing's trade tit-for-tat with Washington keeps escalating, some experts think American companies doing business in China should buckle up for a rough ride. The fast growing Chinese economy is a massive market for top US brands such as Apple and Starbucks.

"Much fewer Chinese companies have large operation in the United States," said Hu, the Macquarie analyst.

Aberdeen's Wolf said Chinese authorities could make life difficult for American companies operating on its turf by using selective enforcement of regulations, such as fire codes and food safety, as a means to shutter parts of their operations.

Such moves would have consequences for China's economy, though. Large numbers of Chinese citizens work in assembly plants for Apple products or in Starbucks stores across the country.

Related: How tariffs on China could make your life more expensive

Some of the tariffs China already announced may also cause complications by pushing up prices.

"Imposing tariffs on soybeans looks problematic," said Julian Evans-Pritchard, a China economist at research firm Capital Economics, in a note to clients. American soybeans imports are cheaper than the Chinese equivalent because of more efficient processing. And other countries don't produce enough soybeans to meet Chinese demand either, he added.

China's 'cool-headed approach'

Experts say there are some steps that China could theoretically take to punish the United States that are too risky to consider.

China is the biggest foreign holder of US Treasury debt, owning about $1.17 trillion. A report by Bloomberg in January rattled markets by suggesting China was considering cutting back on the amount of US debt it buys, pointing to trade tensions as one of the reasons.

Investors worry that if China purchases fewer Treasuries, the US government would have to find alternative buyers. That could prompt a rise in the rate of interest it pays and increase the cost of serving America's vast national debt.

Related: US-China trade war fears: How bad could this get?

But it would hurt China too. A fire sale would also hit the value of China's Treasury holdings and may even end up destabilizing China's currency against the dollar.

"China's policy makers will take a cool-headed approach," Hu said. "It's unlikely for them to take extreme steps such as dumping US Treasuries."

West Lafayette
Clear
56° wxIcon
Hi: 68° Lo: 40°
Feels Like: 56°
Kokomo
Few Clouds
50° wxIcon
Hi: 64° Lo: 37°
Feels Like: 50°
Rensselaer
Clear
50° wxIcon
Hi: 63° Lo: 37°
Feels Like: 50°
Fowler
Clear
50° wxIcon
Hi: 64° Lo: 38°
Feels Like: 50°
Williamsport
Clear
51° wxIcon
Hi: 66° Lo: 39°
Feels Like: 51°
Crawfordsville
Clear
49° wxIcon
Hi: 67° Lo: 41°
Feels Like: 49°
Frankfort
Clear
49° wxIcon
Hi: 65° Lo: 38°
Feels Like: 48°
Delphi
Clear
51° wxIcon
Hi: 66° Lo: 38°
Feels Like: 51°
Monticello
Clear
51° wxIcon
Hi: 64° Lo: 38°
Feels Like: 51°
Logansport
Clear
48° wxIcon
Hi: 64° Lo: 36°
Feels Like: 46°
Spotty Showers Early, followed by Cooler Temps and Breezy NE Winds.
WLFI Radar
WLFI Temps
WLFI Planner

Indiana Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 107809

Reported Deaths: 3472
CountyConfirmedDeaths
Marion20249757
Lake9956312
Elkhart6139106
St. Joseph582896
Allen5743197
Hamilton4565109
Vanderburgh313425
Hendricks2584120
Johnson2227122
Monroe220936
Tippecanoe208213
Clark202756
Porter195243
Cass19149
Delaware177359
Vigo168320
Madison151375
LaPorte133637
Floyd127060
Howard124763
Kosciusko115617
Bartholomew112757
Warrick103334
Marshall97223
Boone93746
Dubois91418
Hancock88842
Noble85832
Grant83732
Jackson7259
Henry72424
Wayne71814
Morgan67337
Shelby65029
LaGrange62811
Daviess61227
Dearborn61228
Clinton58911
Harrison54324
Putnam5088
Lawrence49828
Montgomery49321
White46914
Knox4489
Decatur44639
Gibson4254
DeKalb42110
Miami4182
Greene40635
Fayette40113
Jasper3722
Scott34410
Steuben3427
Sullivan32512
Jennings30512
Franklin29025
Clay2845
Posey2840
Orange27724
Ripley2708
Carroll26713
Wabash2527
Washington2491
Whitley2416
Wells2372
Jefferson2343
Starke2297
Fulton2272
Adams2263
Tipton21522
Huntington2033
Perry20014
Randolph2007
Spencer1944
Newton16311
Owen1621
Jay1570
Martin1500
Rush1474
Pike1311
Vermillion1200
Fountain1132
Pulaski1121
Blackford1062
Crawford980
Brown933
Parke892
Benton870
Ohio757
Union750
Switzerland660
Warren381
Unassigned0225

COVID-19 Important links and resources

As the spread of COVID-19, or as it's more commonly known as the coronavirus continues, this page will serve as your one-stop for the resources you need to stay informed and to keep you and your family safe. CLICK HERE

Closings related to the prevention of the COVID-19 can be found on our Closings page.

Community Events