China might accept currency devaluation to boost export competitiveness, say experts. Beijing has several alternatives to retaliate to US President Donald Trump’s 10% tariffs on China.
Analysts say China has many alternatives to respond to new US charges, from retaliatory tariffs on car parts and soybeans to curbs on raw minerals needed for American production.Over the weekend, President Trump slapped further tariffs on Chinese goods, escalating a trade war that began eight years ago in his first administration.
Beijing warned of “no winners” in a trade war and promised unspecified responses.
After Canada and Mexico reached a deal with Trump to suspend 25% tariffs on their exports, Trump said he will talk to China “probably in the next 24 hours” to reach an arrangement.
However, Beijing officials’ responses to the prospect of fresh measures are being watched.
China is still grappling with lackluster consumption and growth, so many expect it to keep its powder dry until another round of tariffs might do more damage.
“We expect China not to jump to immediate retaliation following the 10% tariff hike, but will keep the doors of negotiation and cooperation open,” a note from UBS bank said.
“We do not expect China to follow the same strategy as in the first round of tariff hikes in 2018-19.”
US statistics shows bilateral trade over $530 billion in 2024, with Chinese exports over $400 billion. Second only to Mexico.
Washington has long been alarmed by the $270.4 billion trade deficit from January to November last year.
Fentanyl
The first trade war saw the US demand wider access to China’s markets, extensive reform of a corporate playing field that favors Chinese enterprises, and an easing of state regulations.
Washington again wants China to stop exporting chemical components to Mexico to produce fentanyl, which kills tens of thousands of people a year.
After lengthy discussions throughout Trump’s first term, the two reached the “phase one” trade war ceasefire.
Beijing quickly responded to the dispute by placing tariffs on autos and soybeans to hurt Trump’s rural electoral base.
It also threatened to restrict rare earth metal exports, which China dominates that the US relies on.
Harry Murphy Cruise, head of China and Australia economics at Moody’s Analytics, told AFP that “measures could include tariffs, export controls on critical minerals essential for US manufacturing, restricted market access to US firms operating in China, or the depreciation of the yuan” if a trade war escalate
He said Beijing may have learned from the first stalemate.
“The tit-for-tat trade war in Trump’s first term benefited no one; it made trade more costly and hindered growth in both countries,” he said.
No huge surprise.
Analysts think the new measures won’t hurt much.
“The 10% tariff is not a big shock to China’s economy,” Pinpoint Asset Management’s Zhang Zhiwei wrote.
“It’s unlikely to change the market expectation on China’s macro outlook this year, which already factored in higher tariffs from the US,” he said.
That might help China avoid a larger conflict if Trump’s first tariff wave is just the beginning.
The US president ordered a comprehensive assessment of Chinese trade practices, expected April 1.
Murphy Cruise warned that might “catalyst for more tariffs” and force Beijing to change tactics.
“This strategy of no retaliation may change if the US imposes additional significant tariffs later on,” UBS analysts warned.
“In such a case, we think China may retaliate on a targeted basis and in a restrained manner, imposing tariffs on selected agricultural products, auto parts, energy,” stated.
China might also lower its yuan to boost export competitiveness, experts said.
Trump’s stalled discussions with Beijing offer a chance to avoid a trade war that might cost hundreds of billions of dollars.
“China is looking to diffuse tensions,” Murphy Cruise added.
“China’s economy is in a much weaker position this time around; it will be substantially harder to withstand a barrage of tariffs,” he said.