US targets that are most vulnerable to China trade retaliation

To date, China has followed a policy of "strategic composure" in dealing with Donald Trump's America First ethos.
To date, China has followed a policy of "strategic composure" in dealing with Donald Trump's America First ethos.PHOTO: REUTERS

WASHINGTON (BLOOMBERG) - China could hit back with measures against America's US$140 billion (S$184 billion) of annual exports to the Asian powerhouse if President Donald Trump imposes tariffs.

The president is expected to announce punitive actions on Thursday (March 22) after the US Trade Representative's office concluded that China is violating intellectual-property rules.

When the Chinese respond, "they'll pick and choose with political aims in mind", said Dr Claude Barfield, a resident scholar at the American Enterprise Institute, who was a consultant to the Reagan administration on trade policy.

To date, China has followed a policy of "strategic composure" in dealing with Mr Trump's America First ethos. If that changes, below are some potential targets.

AGRICULTURE

Agriculture may be on the front line of Chinese retaliation, and the sector, one of the few in America that runs a trade surplus, is painfully aware.

The US shipped US$14.6 billion of soybeans to China, its biggest buyer, in the last marketing year - more than a third of the entire crop.

China is making noise about the purchases, with a Tuesday editorial in its Global Times newspaper accusing the US of "dumping" its government-subsidised beans.

Rumblings against US sorghum, also dependent on China trade, sent that commodity plunging in February. The chief executive of the American Soybean Association has said that Chinese retaliation would have long-term consequences, as Brazil and other competitors would likely take market share.

China would feel some impact if it cuts back. It is heavily dependent on US soybeans for cooking oil and animal feed, especially in seasons when Brazil is not harvesting. But the damage would be real, both economic and political. Soybean production is concentrated in middle-American states that voted for Mr Trump.

US pork exports could be another "easy target", amid a boost in China's sow herd, according to Vertical Group, a New York-based investment bank.

TECH TIT-FOR-TAT

The purpose of the investigation by the US Trade Representative's Office was to shield the intellectual property of American companies, a key concern in Silicon Valley. But US tech companies are also vulnerable to retaliation, especially companies such as Apple and Intel that have manufacturing operations in China.

CONSUMER GOODS

Another possibility is that China emulates the European Union's retaliatory tactics, Dr Barfield said. The EU is considering restrictions on imports of US goods including Harley-Davidson motorcycles and jeans from San Francisco-based Levi Strauss & Co.

China has not been shy about threatening US corporate interests. The Global Times warned in late 2016 that a trade war would have economic consequences. "Boeing orders will be replaced by Airbus," the Communist Party newspaper said in an editorial.

Chinese President Xi Jinping gave Boeing a US$38 billion order during a 2015 plant visit in Seattle.

The US recorded a US$38 billion services trade surplus with China in 2016. Some of the leading services exports from the US to China include travel; intellectual property, such as trademarks; and computer software, according to the US Trade Representative's Office.

China could restrict the number of students who go to US universities, hurting their funding at a time when an ageing population has resulted in declining enrolment at many American schools.

China could seek to depreciate the yuan as a counter-measure, according to Professor Wang Wen, executive dean at the Chongyang Institute for Financial Studies at Renmin University. A weaker yuan would make Chinese exports more competitive, and currency manipulation is something that Mr Trump and his allies have fumed about in the past.

"China has a lot of policy choices in its tool box," Prof Wang said. "China is keeping patience and waiting now, as we are well known for the strategy of gaining mastery by striking only after the enemy has struck."