President Trump's decision on Saturday to impose new rates on the import from China, forms a dilemma for the leaders of Beijing: is it better to ignore the new rates or take revenge?
Little runs the risk of looking weak in the eyes of the Chinese people. The extensive domestic propaganda device of China has described China as a rising power, while the United States is portrayed as suffering inexorable decline.
But powerful retribution threatens to start a global trade war that could damage China more than the United States. The trade surplus of China – the amount with which exports exceeded imports – reached almost $ 1 trillion last year. Export, and the construction of new factories to make further exports, are nowadays practically the only area in force in the Chinese economy.
China's first reaction on Sunday was careful: the Ministry of Trade said it would challenge the rates at the World Trade Organization. The research panels of that body can try to embarrass a country that violates international free trade rules by criticizing a specific trade action.
But the WTO has lost much of its power since 2019. The first Trump administration and then the Biden administration blocked the appointment of judges needed to allow countries to take countermeasures.
Some in China were relieved that Mr Trump initially concentrated his criticism of other countries. But few expected that it would take.
“I don't think we feel optimistic about the future of this relationship,” said Wu Xinbo, dean of the Institute of International Studies at Fudan University in Shanghai, Thursday. “Given his Hawks team in China, the battle is yet to come.”
On Saturday, President Trump set 10 percent rates for goods imported from China, as well as 25 percent rates aimed at Mexico and Canada. He said he could escalate the rates if the countries were to take revenge.
In her response, the Chinese Ministry of Commerce said that “countermeasures would cost to firmly protect its rights and interests.” But the ministry also urged the United States to 'strengthen cooperation'.
China has shown that in the weeks since President Trump it was re -elected that it might not only be willing to take revenge for rates, but also to increase the Ante.
China has placed export controls on a gradual extension of the list of materials and technologies. At the beginning of December, China stopped export to the United States of critical minerals such as Antimoon and Gallium, which are used in the production of some semiconductors.
The export ban was retribution for a decision by President Joseph R. Biden Jr. A day earlier to expand American curbs on the transfer of technology to China.
Beijing's answer went beyond previous export restrictions: For the first time Beijing officially forbade other countries that buy these minerals to export them to the United States again. China had previously been a critic of such a transfer ban and described them as an unfair form of “long-arm” jurisdiction that disturbed international trade.
Nevertheless, Beijing is aware, Chinese experts said that a strong response from China is two major risks.
Further restrictive exports can encourage multinationals to stop investing in China and placing their new factories in other countries. Another risk is that such curbs on export by China can cause a further response from President Trump.
An upward spiral in trade restrictions is what happened during the first Trump administration. In 2018, China responded to those first rates with its own penalties on American exports. But while Mr. Trump imposed further rates, Beijing quickly no longer hit American exports to target. China sells almost four times more goods to the United States than it buys.
China and the Trump government agreed to stop the escalation in January 2020, but left at the place of most rates imposed.
Some Chinese experts claim that the rates harm US consumers, by increasing prices, more than they will harm China.
“This style of bluff will be counterproductive,” said Zhang Weiwei, dean of the China Institute at Fudan University in Shanghai. “From our calculation, more than 90 percent of the increased rates were actually paid by American companies or consumers.”
However, some Western economists claim that the question of who pays rates is not clear. To prevent large losses of market share in the United States after the earlier imposition of rates, some Chinese companies lowered prices. That would have helped them to compensate for the rates and to keep American importers to turn to suppliers in other countries.
The export from China to the whole world rose by more than 12 percent last year with volume, but the increase in dollars was only half as much, when companies lowered prices.
China's currency has also been weakened in recent months and prices are falling in China for many goods. Chinese goods has made this more competitive in foreign markets, including the United States, and can compensate for part of the costs of the rates imposed on Saturday.
Professor Zhang pointed out that export to the United States represents a decreasing share in the total export of China, since exports to developing countries has risen.
Yet China has become indirectly more dependent on the American market. China's export has risen to countries such as Mexico and Vietnam that put together Chinese components in end products for re -exporting to the United States.
The big question now for China is how many other countries President Trump will hit with rates.
“China has learned from Trump's first term how even large bilateral rates for direct US trade in the US china will simply pay to import a crucial part, and Chinese companies will find a way to the Ultimately meeting outside of China, while still with the help of a lot of Chinese parts, “said Brad Setser, an international economist at the Council on Foreign Relations in New York. As long as the final meeting is done outside of China, goods have usually been able to circumvent American rates for China.
But American rates For many countries, China would be harder to bypass. “China has a problem if President Trump is determined to close all bilateral trade shortages of the United States, regardless of the additional damage to the US economy,” Mr Setser said.
Many countries in Asia, Europe and Africa have large trade shortages with China that they can only afford by leading large trading surpluses with the United States. Last year, the European Union had a trade deficit of $ 247 billion with China – and an almost equal trade surplus with the United States.
If President Trump limits the ability of many countries to lead large trade surpluses with the United States, countries can resort to impose rates for China.
China is more dependent on trade surpluses than during the first Trump administration. During the first term of office of President Trump, prices at the housing market of China rose in the midst of a manic pace of the construction of apartments.
But the Hot Real Estate Market began to cool in 2021 and the prices have fallen since then. Millions of construction workers have lost their jobs and families from the middle class have lost their savings.
Because renewed tensions with the United States fall home with economic weakness at home, officials and experts in China still hope for the best.
“We will do our best to try to stabilize this relationship,” said Professor Wu Thursday, “but we are also preparing for the sausage case scenario on the road.”
