2018-08-05

How Can China Respond to Another $200 Billion in Tariffs?

China cannot meet the U.S. blow for blow in a trade war for the simple reason that it lacks the firepower. Mutually assured destruction isn't possible when the sides aren't symmetric. China is an emerging economy with a massive trade surplus. Going to the extreme, if trade ceases and China cannot find new markets for its export goods destined for the USA, a great deal of labor and capital immediately becomes malinvestment. China cannot afford the losses because it is at the end of a credit cycle, has an inefficient private economy heavily hampered by the state and rising pressure on the currency. Conversely, the U.S. will suffer higher prices and shortages, but pain can be ameliorated by subsidies. In order to meet lost supply, it will find other overseas producers or increase domestic production, boosting investment and employment. A full-blown trade war produces no winners in China, but it does produce winners in the United States even if on balance the country is worse off.

The first step for China is not getting into a blow-for-blow battle with the U.S. Buy time and try to find alternative strategies, and also hope the U.S. eases its stance or weakens because its own economic cycle reaches an inflection point.

iFeng: 600对2000就是打不过?贸易战从不是数量对比那么简单
But even so, some people may still have doubts: 60 billion to 200 billion? Still divided into four files, the highest one is just 25% like others? Does this mean that we have no cards in our hands? Some people may even send out feelings: We may not be able to beat the United States in this trade war!

In fact, if the Chinese side does not care about the reality, it is the performance of losing power in the contest. As Reuters reported in previous reports: China’s official expression of the economy has been adjusted from “stable progress, steady and good” to the “stable change” expressed in the Politburo meeting, which means continuous fermentation. In the Sino-US trade war, Chinese officials have turned to a more active and pragmatic response.

Trade wars are not gambling. They must have the courage to dare to follow, and they must have the skills to follow. How much we throw blindly with our opponents does not mean that we are effective.
The contrast between China and the United States, the starting point of the trade war and the different stages of development determine the differences in counter-measures.

The United States is self-proclaimed as the leader of the "rich and wealthy". While using its own domestic law to accuse China of its trade behaviors that do not conform to international rules, it is waving a tariff bar to let China obey the policy of adjusting its policies from the inside out, and intends to pass the time limit, wants to push China "more painful" and push China back to the negotiating table.
China can't mirror U.S. action in a trade war.
But we can't do that.

First, regardless of the size of the mass, the structure, and the right to speak in the global economy, we must recognize that there is still a big gap between China and the United States. In the face of a taller and stronger opponent, a strong man can be a brave man. Wisdom is the best choice. The US has played a $200 billion king bombing to win quickly, although it will suffer damage itself, but this consumption can survive in the short term. But if we draw the gourd as it is, it will not be worth the candle. Moreover, from the perspective of Sino-US trade import and export, according to data released by the US Trade Representative Office, in 2016, US exports to China totaled US$169.8 billion, of which goods exports were US$115.6 billion, that is, all US exports to China were all Counting it in, it is also difficult to make up 200 billion.
Secondly, in this trade war, we are the war-torn side. The attitude toward the trade war has always been “have to fight”. The “war” itself has never been our purpose, but more similar to a kind of suppression of the other side’s indiscriminate bombing. For us, we have to withstand and play, we need to pay more attention to tactics and play. The Chinese side stated that it is necessary to "retain the right to continue to introduce other countermeasures." Some people may doubt: If there is a card, how can it not be played now? Then please go back to the beginning of the paragraph. There is no doubt that trade between the two countries, in addition to tariffs, of course, there are many articles to do, such as non-tariff barriers, such as investment access, such as subsidies to competitors in the same industry, and so on.
Third, China and the United States are at different stages of development. We are an emerging power that is catching up. We must strive for a peaceful and stable internal and external environment as much as possible, minimize the impact of trade wars on ourselves, and minimize losses. The United States has a stable position and builds on its accomplishment. In fact, they have more tossing capital and enthusiasm than us. They don’t mind using their partial losses in exchange for China’s domestic economy, and thus let China miss the next step. The strategic development period has become a victim of its attack on the latecomers. They want to induce us to go crazy together, we need to stay calm.

Just two hours after the Chinese announced the counter-measures, Kudlow said in an interview with Fox Business News that China’s counter-measures were not “toothy” and “much lower than the figures we saw”. He also warned that China should not underestimate President Trump's ability to take action on trade with China. Between the lines, the self-satisfaction, it seems that the trade war is simple enough to be just a digital game.
In the Sino-US trade war, China has to face an opponent that is not easy to deal with, but it is by no means impossible to deal with.

Although we have to fight, we must adhere to our own judgments and means;

We may be smaller in size, but the enemy has never been more successful.

We may be slower in striding, but we must ensure that we are stable and far-reaching.

Since this matchup cannot be avoided, let us take the courage and calm down.

We are never lacking in such a passion for "The diligent person, the day does not lose, all things come to those who wait, 3000 more armor may swallow Wu."

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