China to retaliate if Trump boosts tariff, says ex-PBOC official

BEIJING – China will fight back if US President-elect Donald Trump follows through on his promise to impose a 60 per cent tariff on Chinese imports, according to Dr Zhu Min, a former top official at the Chinese central bank. 

“If Trump and the administration really levy a 60 per cent tariff on China, I think China will retaliate” and bring the case to the World Trade Organisation, said Dr Zhu, a former deputy governor at the People’s Bank of China, or PBOC, in an interview on Bloomberg Television on Nov 15. “There are many things they can do.” 

He did not specify the potential retaliation measures. But he said the tariffs would impact the Chinese currency, which, he said, is determined by market forces such as trade and capital flows. The tariffs will also affect China’s demand for US Treasuries, he added.

China is the second-largest foreign creditor to the US government after Japan, holding about US$775 billion (S$1.04 trillion) in Treasuries.

Tariffs “will affect the exchange rate, they will affect China’s capital flow, and also will affect how much China will buy US Treasury bills”, said Dr Zhu, who is now chairman of the National Institute of Financial Research at Tsinghua University. 

Trump imposed tariffs of up to 25 per cent on more than US$300 billion of Chinese imports during his first term in office – triggering retaliation from Beijing – and President Joe Biden has largely kept them in place. On the campaign trail,

Trump threatened to increase the levies on Chinese goods to as much as 60 per cent

, a level that Bloomberg Economics said would decimate trade between the world’s two biggest economies.

If the trade war were to escalate, “it would be tough things” for both countries, said Dr Zhu, who also served as deputy managing director at the International Monetary Fund. “It would be nice if both sides can sit down, talk and cut a deal because, economically, both sides really complement each other,” he said. 

He pointed out that China’s exports globally have thrived in recent years, surging to almost US$4 trillion, from US$2.5 trillion in 2019. Even so, he said,

Beijing has made a “strategic shift” to reduce its dependence on trade

and to boost domestic demand, a process he acknowledged will “take some time”.

When asked about whether the stimulus Beijing launched in late September is enough to end the deflation China is suffering, Dr Zhu largely deflected the question. 

The “short-term goal” for Beijing is to stabilise the housing market, reduce the debt burden of local governments and boost consumer confidence, he said. BLOOMBERG