China Can Retaliate Tariff Hikes With Its Market Weapons
The US-China trade war has impacted not only the world’s two largest economies but also the global economy. The situation which till last week was looking towards an amicable resolution has taken a turn for the worse with Trump administration imposing tariff hikes on $250 billion of Chinese goods. Goods like handbags, clothing, footwear, fish, etc. will be affected and will see a rise in duties from 10% to 25%.
Chinese to retaliate
Even while the US and Chinese officials were in talks with each other for the trade deal, Trump made a shocking Tweet on Sunday that the talks were moving ‘too slowly’ and that he would impose taxes on $250 billion worth of Chinese products. Later on, the US representatives said that the Chinese were backtracking on the terms they had agreed, and that is jeopardizing the talks.
Though both countries meet again in Washington to salvage the deal, the Chinese officials said that they will take necessary measures to counter the move made by the US. The hike in tariffs was announced in the official website of the China Commerce Ministry and in a statement said:
It is hoped that the US and the Chinese sides will work together … to resolve existing problems through cooperation and consultation.
China has many powerful weapons to fight back against the US, and a few of them are Treasuries and the Yuan.
Devaluing the Chinese Currency
One of the ways the Chinese can make the playing field level is by devaluing the Yuan to overcome the impact of taxes on the Chinese economy. The US had sought to stabilize the Yuan as part of the trade deal as that can impact the US economy. But it can be a double-edged sword for China as offsetting yuan will increase the outflow, affect the domestic confidence and can also anger Trump leading to an increase in US tariffs.
Increasing duties on Soybeans
The Soybeans which is grown mostly in the MidWest of the US is mostly exported to China as it the biggest importer of this crop. China has already imposed 25% taxes on it and can further increase it. Since MidWest is the electoral base of Trump an increase in duty can significantly impact him and the Chinese will try to exploit it.
But with China still willing to negotiate as the trade war can affect their economy as well as the financial markets, many analysts believe that it is in China’s best interest not to retaliate.
