The latest round of reciprocal tariffs between China and the United States went into effect on Monday, after US President Donald Trump's administration slapped 10-percent import duties on $200 billion worth of Chinese goods and Beijing responded by charging 5-10 percent tariffs on US goods valued at $60 billion.
As part of China’s response to the latest round of harsh US tariffs on Chinese goods, Beijing canceled planned trade talks between the two countries scheduled to take place in Washington this week.
US President Donald Trump showed no sign of backing down from his hawkish position on the trade dispute with China, after he threatened to expand tariffs to another $267 billion worth of Chinese goods. Such a move would bring the total value of Chines exports subject to hefty US tariffs to $517 billion, above the value of $505.5 billion Chinese goods exports to the United States in 2017.
After responding to Trump’s trade threats with reciprocal tariffs on US goods valued at $50 billion and $60 billion, respectively, in recent months, Beijing looks to be running out of options to tax additional imports from the United States, which only exported a total of $129.9 billion worth of goods to China 2017. US Commerce Secretary Wilbur Ross went as far as suggesting that Beijing is "running out of bullets" to retaliate against tough US tariffs, as the size of US exports to China is much smaller.
US Companies to Lose More
Economists started to express concerns that Beijing could respond to further US trade aggression by targeting US companies doing business in China. However, Chinese economists argued that it is unlikely for Chinese authorities to try to punish US companies doing business in the country, because harsh US tariffs are already hurting those companies.
"Even if China doesn’t take punitive measures, such as forcing US investments out of the country, the US companies doing business in China and US consumers are the ones who will suffer from steep tariffs on Chinese manufactured goods. If they [the US government] want to punish those companies, why we need to play the bad guy to follow such actions?" Zhao Xijun, a finance professor with the Renmin University of China in Beijing, told Sputnik.
According to official figures, foreign enterprises, especially US companies, contribute about 40 percent of China’s global exports annually.
The Chinese scholar explained why US companies such as Apple have more to lose in the face of hefty US tariffs on products manufactured in China.
"Take [US company] Apple as an example. After assembling its products in China, about 40 percent of its products go back to the US market. When Apple products face higher US tariffs, the prices of Apple products will be much higher in the United States than in other markets in the world. It will only hurt Apple’s market share in the United States. It doesn’t have anything to do with China," he said.
The expert suggested the Chinese government could take the chance to show the world its commitment to opening up further.
"If you [the United States] want to punish your own companies, we can start to provide better services and help them go through this difficult period. That’s because their investments contributed to the economic growth in China. We can prove to the world that we’re committed to opening up further," he said.
Disrupting Global Supply Chain
The Beijing-based economist explained that Trump’s aggressive trade policies are aimed at forcing US companies to move their manufacturing operations to other countries, as part of his strategy to harm China’s economic growth.
"Foreign companies’ decision to manufacture their products in China came as a result of changes in the global supply chain, which has little to do with Chinese or US trade policies. This kind of changes followed the law of economic development and fits the demand for improved efficiency. If the United States is determined to break the current global supply chain and force US companies to move production out of China, those US companies would lose their existing investments in China and have to invest additional capital somewhere else, where they could face much higher cost and lower profits," he said.
Professor Zhao added that the disruption of the current global supply chain could also hurt production efficiency and have fatal consequences for economic growth all around the world.
Other economists argued that Chinese exporters could try to form a united front and avoid jumping to lower their prices in face of harsh tariffs in the US market, as US companies are unlikely to find a competitive alternative location for manufacturing in the near future.
"In the short term, it’s unlikely for the companies to move the manufacturing to other countries. This [moving manufacturing] carries huge risks for long-term investors. The best response for China is to encourage the companies to hold their bottom lines and avoid lowering their prices. They [Chinese exporters] can also demand the US buyers to handle more of the burden of additional tariffs. In this way, the exporters can ensure their profits in foreign currencies," Guan Zhisheng, an assistant professor of economics at Sun Yat-sen University in Guangzhou, told Sputnik.
The economist suggested that Chinese exporters can try to negotiate with US companies or industry associations on how to handle the increased cost caused by new tariffs, as the US political system allows companies to have more freedom from the government’s policy positions.
Too Early to Talk
As both sides just introduced reciprocal tariffs against each other in the past few months, it might be too early for China and the United States to start negotiations to resolve the trade dispute, as the impact of the new tariffs is still not clear, professor Guan suggested.
"China is not responsible for the escalation of the trade dispute, because Chinese companies have always offered a rather low price when exporting to the global markets. Both sides can try to let the market decide what kind of impact the reciprocal tariffs will have. After 6 months or one year, upon reviewing the results of the impact, both sides will have a better foundation for negotiations. If they start to negotiate too early, each side probably doesn’t even know how much it can handle the impact from the tariffs," he said.
Despite the fact that China may have a limited range of US goods from which to levy new tariffs, the expert expects Beijing to continue to respond with retaliatory measures when the Trump administration introduces new tariffs against Chinese goods in the near future, because the Chinese government needs to appear "defiant" in face of hostility from the United States from a foreign policy standpoint.
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