As Donald Trump secures a second term as US president, China finds itself bracing for a renewed trade war, this time with a more assertive and prepared Beijing, Bloomberg reports.
While Trump’s victory has triggered volatility in the Chinese markets, with the yuan weakening and stocks falling, China has taken strategic steps since the last trade war to mitigate the impact of Trump’s potential tariffs and export controls.
Trump has threatened to impose tariffs of up to 60% on Chinese goods, a move that could decimate trade between the world’s two largest economies. This comes on top of existing export controls on advanced technology implemented by the Biden administration.
In response, China has expanded its arsenal to counter US pressure, including export controls on critical raw materials, tariffs on agricultural goods, and an entity list targeting key American companies.
However, China would prefer to avoid a tariff battle that could prove more devastating than the first round. The country has relied on exports of goods like electric vehicles and batteries to bolster its economy, which is grappling with deflationary pressure and property woes.
Goldman Sachs Group Inc. predicts that increased trade restrictions on China could force Beijing to stimulate domestic consumption, a move the Communist Party has traditionally avoided.
While China’s economic slowdown offers some buffer, the country has fewer obvious targets to retaliate with. Imports from the US have declined, and Beijing has not signed a contract to buy new Boeing jets for years. The stock of Chinese investment in the US has also shrunk.
A potential option for Beijing is to devalue its currency, making its exports cheaper. While a large devaluation could provoke other trading partners, the yuan is currently at a level that would make this a plausible strategy.
China’s arsenal now includes export controls, a tool the US has used frequently against China. Beijing could impose curbs on critical raw materials needed for US strategic technologies.
The country also has a more formal process for sanctioning foreign firms. In September, China announced a probe of PVH Corp., parent company of Tommy Hilfiger and Calvin Klein, for not using cotton from Xinjiang, where the US has restricted trade due to human rights concerns.
Ultimately, China would prefer to strike a deal with Trump. However, Beijing recognizes that it must prepare for the worst, especially considering Trump’s willingness to implement policies that would also hurt the US economy and raise prices for American consumers.
