China holds the cards in trade war

White House economic adviser Larry Kudlow speaks with the media at the White House in Washington, DC, on June 18, 2019.
White House economic adviser Larry Kudlow speaks with the media at the White House in Washington, DC, on June 18, 2019. PHOTO: AFP

I am unpersuaded by White House economic director Larry Kudlow's optimistic assessment of the balance of power in the ongoing US-China trade war (Trade war will hurt China more, says top US economic adviser, June 15).

Putting aside Mr Kudlow's lack of objectivity given his position within the Trump administration, his arguments ring hollow in the face of economic realities.

First, the question of exposure.

The American economy is highly dependent on its connections to the outside world for raw materials, capital, skilled labour, and customers.

As anticipated, severing the vital link to China has been a serious self-inflicted wound.

In contrast, the Chinese economy remains highly predicated upon the domestic market.

A significant number of major Chinese corporations do business almost exclusively within the mainland, with entirely domestic production chains and consumer bases.

This insularity shields many of China's most valuable industries from American disruption.

Should the trade war become a test of attrition, Beijing appears far more prepared to weather the storm than Washington.

Second, the question of leverage.

At this juncture, the US has already exhausted many of its most strategically significant options.

Conversely, China retains the "trump card" of rare earth metal supplies, which if exercised could derail the American technology sector.

Third, the question of alternatives.

Mr Kudlow claims that America has a choice to buy from countries other than China.

Unfortunately, few economic powers can match Chinese production and capacity, and sometimes, even expertise. Fewer still are willing to risk relations with China by bolstering the American cause.

Paul Chan Poh Hoi