Experts say Beijing has plenty of options if they want to hit back against the U.S.’ latest tariffs hike on imports of Chinese goods.
The recent round of negotiations between the U.S. and China ended on Friday with no trade agreement. The same day, soon after midnight ET President of the U.S. Donald Trump ended up making good on his earlier threat of increasing the tariff rate by more than twice to 25% on Chinese goods worth $200 billion.
China’s Ministry of Commerce deeply regrets this sudden new policy and will soon implement countermeasures.
A previous deputy assistant to Secretary of State, Susan Shirk, says China’s retaliation will be commensurate and likely to impact U.S. farmers and their farm exports, since politically, that’s what could bother President Trump. She adds American firms in China could face a potential slowdown of bank approvals and import restrictions.
Beijing could also retaliate through currency depreciation, by dropping the value for Yuan and giving exports from China a strong trade advantage. Potentially, this could offset the effect of tariffs of U.S. But Seema Shah, a senior strategist for global investment from Principal Global Investors cautions that a weaker Yuan could trigger capital outflows and cause damage on efforts to open the Chinese economy.
While China could possibly dump its U.S. debt worth $1 trillion in retaliation, experts opine that this kind of a move wouldn’t do well for the country in the long run. An expert from JP Morgan said China is the U.S. Treasury’s largest holder, so by incrementally hurting the U.S. they also hurt the Chinese balance sheet, forcing them to recognize very real losses.
Despite plenty of options to retaliate, Xi Jinping, China’s President doesn’t quite have an upper hand over the U.S. There are workarounds but it will be a challenge for the Chinese President to choose the right one.