China's arsenal in US tariff row shrinks but it has other weapons

Boeing sells a quarter of its planes in China, the second-biggest market in the world, and state-run tabloid Global Times has warned that Beijing could "adjust the sales volumes".
Boeing sells a quarter of its planes in China, the second-biggest market in the world, and state-run tabloid Global Times has warned that Beijing could "adjust the sales volumes".PHOTO: BLOOMBERG

BEIJING (AFP) - With Donald Trump now planning to hit roughly half of China's exports with higher tariffs, Beijing finds itself outgunned as it imports far less from the United States and cannot fire back dollar-for-dollar.

Trump said on Monday (Sept 17) he would impose 10 per cent tariffs on US$200 billion of Chinese goods from Sept 24, adding to levies already put on US$50 billion of products in the summer.

The US imported around US$500 billion worth of goods from China last year.

China has imposed retaliatory tariffs on US$50 billion of US goods so far and has threatened to hit another US$60 billion but it is running out of targets: it imported about US$130 billion in US goods last year.

Beijing has warned that it would respond "quantitatively or qualitatively", hinting it has weapons other than tariffs in its arsenal.

Here are its options:

Tariffs to start

China has warned it could impose tariffs of five per cent to 25 per cent on US$60 billion of US goods. Those possibly subjected to 5 per cent taxes range from peppermint oil to pig hides, while cocoa butter and condoms would face 25 per cent levies.

Last month, White House economic advisor Larry Kudlow dismissed China's threat as "weak" but admitted Beijing could "damage our companies in China".

US company sales

The Chinese authorities could find all sorts of ways to make life difficult for US companies.

Boeing sells a quarter of its planes in China, the second-biggest market in the world, and the state-run tabloid Global Times has warned Beijing could "adjust the sales volumes".

Some experts point to a historical precedent: South Korea's Lotte - which infuriated Beijing by providing a golf course to be used for a US missile defence system - saw scores of its supermarkets shut down, ostensibly over "safety issues". It sold many of its China-based outlets this year.

Beijing may be less inclined to hit American stalwarts like McDonald's, General Motors or Ford where state-owned Chinese partners hold significant stakes.

But targeting Apple, Starbucks or Nike may avoid some of the self-inflicted pain.

Apple has already come under attack this summer from a state media campaign investigating its apps and iMessage system.

Boycotts

State media has so far refrained from whipping up anti-American sentiment as it has in diplomatic tiffs with Japan and South Korea.

But Wu Baiyi, head of the Institute of American Studies at the Chinese Academy of Social Sciences, warned: "Ordinary Chinese people are actively following international issues."

He did not know for how long the public would remain calm, adding: "If 1.3 billion Chinese have their heart broken by Americans, this I'm afraid is a very hard thing to repair."

Exchanges

Said Wu: "Chinese parents have been willing to send their kids to study in the US, but if the US keeps on like this, we can send them to the UK, to Germany, even to Brazil or India."

Some 350,000 Chinese students head to the US each year, a crucial source of income for some American colleges.

Hundreds of thousands of tourists also make the journey, splurging on Rodeo Drive and Las Vegas slot machines.

 

The spat with the Seoul showed how quickly Beijing could turn off the tourist tap: China's hordes of travellers stopped visiting after Beijing banned group tours.

Red tape

Semiconductor giant Qualcomm called off a deal this summer to buy Dutch rival NXP after Chinese anti-trust authorities delayed approval.

It was widely thought to be a casualty of tensions between Washington and Beijing, demonstrating the power China's large market has gained in deciding the fate of international mergers and acquisitions.

China has also touted this year's financial opening allowing foreign firms to take majority stakes in local banks. US lenders could find themselves at the back of the line for licences and approvals if tensions continue to spiral, experts say.

American firms are already seeing increased scrutiny - 27 per cent have reported more inspections, 19 per cent felt tighter regulations and 23 per cent witnessed slower customs clearance, according to a September survey by the American Chamber of Commerce in China.

The White House believes China will wave the white flag after the next round of tariffs, said chamber chairman William Zarit.

"But that scenario risks underestimating China's capability to continue meeting fire with fire," he added.

Debt and yuan

Some analysts point out that China is the main holder of US debt, but selling part of its nearly US$1.2 trillion in US treasuries could cause self-inflicted losses.

Same for the yuan. While a devaluation of the Chinese currency could offset the effects of the tariffs, analysts say Chinese policymakers would not want to risk a capital flight from the country.