China and us =Beijing commentators have no real effective way to respond to the US after President Donald Trump raised taxes on Chinese goods and banned Huawei’s door.
These days, the gloomy atmosphere is embracing China’s technology group Huawei. The world’s second-largest smartphone maker lost the right to use Google’s Android operating system and bought chips from Intel. International partners like ARM and Panasonic also comply with US requirements and “take a break” with Huawei.
Earlier, US President Donald Trump imposed sanctions tax of 25% on 200 billion USD of goods imported from China. Mr. Trump threatened to tax 25% on 300 billion USD of other goods imported from the world’s second largest economy.
On May 29, the People’s Daily published an editorial with the title, “America, don’t underestimate China’s ability to counterattack”. “We recommend that the US should not underestimate its ability to protect China’s rights and development interests. Don’t say we don’t warn you first.”
According to The Verge, experts say China wants to retaliate in order to limit the consequences of punishments from the United States, while also asserting its strength. However, the Beijing government does not have many powerful weapons in hand.
China was the first to attack the US trade
Veteran economist Hosuk Lee-Makiyama said bluntly: “What does China have to retaliate against America?” In the past, the Beijing government imposed taxes on a number of US products to protect the domestic economy, while limiting US Internet companies such as Google or Facebook.
On Stratechery, expert Ben Thompson said that in fact China is the only country to fire the war on technology – technology before banning a series of US technology corporations for many years. And now is the time for America to counterattack.
Elliott Zaagman, an economist at the Lowy Institute, has spent the past 10 years studying the Chinese economy. According to him, China’s economic prosperity is completely unsustainable.
The Chinese government set a target for quarterly economic growth and massive lending banks to achieve that number. Beijing has pumped more money into the economy than the US Federal Reserve, Central Bank of Japan and EU combined.
This causes a toxic “asset bubble” phenomenon, for example, the housing market is too hot, the price of houses is blown up to a high level, home buyers have to borrow too much, unable to pay in debt. Thompson and Lee Makiyama evaluated the Chinese economy facing many risks.
According to experts, retaliation against the US will lead to many risks because the Chinese economy is too dependent on international trade. Expert Lee-Makiyama stressed that China is forced to maintain a minimum growth rate of 6.5% to ensure stability.
However, in the first quarter of 2019, Beijing said it was maintaining 6.4% growth. This is the period before the US sanctions tax took effect. Experts predict that China growth may lose about 0.3-0.4% this year.
So there is something formidable in China’s “arsenal” so that the country can retaliate against America? First, China owns more than 1,000 billion US government bonds. Beijing may sell off bonds to the market, making the US economy struggling with high interest rates.
However, all economists insist that if they use the “nuclear bomb”, China will also destroy its own economy. A decline in the US economy will lead to a decline in demand for Chinese goods imports. The depreciation of the dollar price of Chinese goods has become less attractive.
Rare earth weapons are not too special
The most significant warning given by China in the past few days is not a huge threat statement, but a visit by Chinese President Xi Jinping to a rare earth production facility at this country.
China is currently the world’s leading rare earth processor. This is an indispensable mineral for the production of phones, laptops, smart cars and other technological devices.
The CEO of two US smartphone manufacturers revealed to The Verge that China is the only place they can buy neodymium magnets. One is that China is the only seller, while the other says China occupies 95% of the neodymium magnet market.
But researchers say that rare earths are not necessarily an effective weapon like China promotes. Rare earths are not really rare, many countries in the world have relatively abundant reserves. China’s restriction of selling rare earths to the United States will lead to other producers increasing exploitation and trading.
At the same time, the strategy to limit the sale of rare earths will also seriously affect China’s exports and the labor market. Previously, China used to use rare earth as an “exchange item” in trade negotiations with Japan and the US, but failed.
The last thing the Beijing government can do is to impose sanctions on US goods or embargo US companies operating in China. Almost all of Apple’s production lines are located in China. About 65% of Qualcomm’s revenue may be affected if trade with China interrupts.
Other US technology companies such as Broadcom, Micron, AMD, Intel and Texas Instruments will also be in trouble when revenue depends significantly on trade with China.
American consumers may also suffer. According to UBS, imports from China accounted for 26% of Walmart’s goods, while Target was 34%. UBS survey found that President Trump’s punishment tax on Chinese goods could negatively affect 12,000 retail stores in the US.
The American Apparel and Footwear Association warns that new sanctions will “be catastrophic” to the world’s largest economy. A complete Chinese ban could make wounds to the US economy become more serious. This may be China’s most effective negotiating weapon.
It is best to be silent
However, economists claim that China will also hurt its own economy when implementing these measures. According to expert Lee-Makiyama, the choice of China to cut or restrict trade with the US will only have serious consequences for the economy.
Although the domestic market thrives, China still needs international consumers to sell goods and services. And American big men like Apple, Nike, General Motors and Walmart are hiring millions of Chinese workers.
Therefore, US President Donald Trump is fully qualified to be tough with China. Lee-Makiyama said that US GDP could fall from 3% to 2% because of punishing China, but the impact will not be too serious. In contrast, China’s GDP dropped by 1% is a disaster.
According to Elliott Zaagman, the Chinese government was completely taken aback by the aggressive action of Mr. Trump. Therefore, Beijing does not provide an effective counter-attack strategy.
Experts Lee-Makiyama and Zaagman believe that the best thing China can do at the moment is “do nothing”, remain silent and do not make US retaliation ineffective, even hurt themselves. loving our country’s economy.
And the fact that the government of Trump’s blow made China reel, the damage happened. Investors from Silicon Valley are looking for startups that “play close” to China at the lowest level. Many large US manufacturing corporations are choosing Vietnam or Mexico to invest, instead of China.
And in this brainstorming trade war, China does not have a truly effective weapon to respond to the US without making its economy worse.