Dragon's answer: China prepared for a new trade war with the US
US President-elect Donald Trump is constantly threatening his key trading partners with new duties. The European Union is afraid of Washington's protectionist measures and is already estimating possible losses, but China has not waited and has already prepared a legislative framework to give a tough response to the new American authorities. What Beijing intends to do - in the material of "Izvestia".
A duty for everyone
In the case of coming to power, Donald Trump promised to introduce 10 percent duties on the import of any goods from other countries, with certain categories of goods to impose a 20 percent tax; 60 percent tariffs - imports from China, and cars manufactured outside the United States - 100 percent. During President Trump's last term, 25 percent duties were imposed on Chinese imports.
After winning the election, the Republican threatened the BRICS countries with the imposition of "100 percent duties" if they did not abandon plans to create a currency alternative to the dollar.
Liu Pengyu, spokesman for the Chinese Embassy in Washington, said the US has long used the hegemony of the dollar to transfer crises to other countries, spreading American inflation to other parts of the world. "They have made the dollar a geopolitical tool that harms international economic and financial stability and undermines international order," the diplomat explained.
He added that, unlike Washington, the BRICS "will continue to promote economic cooperation and a financial system that is more equitable and inclusive."
Currently, China has 30% of the world's industrial production, while the US has 10% less, this arrangement clearly does not suit the US president-elect.
In the case of large duties, the growth of the world's second largest economy could be reduced, given the importance of the manufacturing sector. UBS estimates that within three years, if Washington imposes high duties, China could lose about 3% of GDP and the US could lose up to 1.5% of GDP.
The European Union is concerned
The US' main ally, the EU, also has reasons for concern. "All these nice little European countries that have gotten together - they don't buy our cars, they don't buy our farm products. But they sell millions and millions of cars in the United States. No, no, no, no, they're going to have to pay a heavy price," Trump promised on the eve of the election.
Car manufacturing plant in Germany
The eurozone currently has a positive trade balance with the United States, with EU countries selling $200 billion more to Washington than they buy from it.
In Germany, the Institute of Economics estimated that the country could lose between €127 billion and €180 billion, and the country's GDP would be 1.5% lower if Trump raises import duties to 10%. Experts concluded that export-oriented engineering and automotive companies would be hit hardest.
Germany is most vulnerable, with its three biggest export items to the U.S. - machinery, chemicals and vehicles - still lacking demand. U.S. tariffs could push the German economy into a more severe downturn.
In the first half of 2024, the US was the most important trading partner of the Federal Republic of Germany. Experts at the Institute of Economic Affairs concluded that the EU would respond with an equivalent increase in tariffs.
In particular, the European Commission has already started drafting a bill that would increase duties by up to 50% on some American goods.
However, Brussels' margin of safety is not so large, the EU has not yet recovered from the consequences of the energy crisis, production in energy-intensive industries has fallen by 10-15%, the largest economies are experiencing industrial decline, while the EU depends on American LNG, which gives the future administration of Donald Trump additional leverage.
China has prepared thoroughly
During his first term as president, Donald Trump launched a full-scale trade war with China. Then Washington's sharp steps - tightening control over investments, sanctions against Chinese manufacturers, high duties - were a complete surprise for Beijing, but now the country's authorities have drawn conclusions and prepared serious countermeasures.
According to The Financial Times, it is about authorization to "impose sanctions and restrict access to critical supply chains and blacklist foreign companies". Chinese authorities recently introduced a law on "Countering Foreign Sanctions."
In particular, it includes clauses that regulate the export of dual-use goods in response to the actions of organizations and states that, "using various pretexts, hinder, suppress and deter the development of the PRC.
Qingdao Port in Shandong Province, China
In general, Beijing has already proved that it is able to inflict tangible economic damage on the US. In 2018, China imposed retaliatory duties on 128 US goods. And in early December, China imposed an outright ban on exports to the US of a number of materials that, according to the Chinese authorities, may have potential military applications. In particular, gallium, germanium, antimony and superhard materials fell under the ban. They are important for the production of semiconductor components.
In addition, stricter control of the end use of graphite products supplied to the US is required.
What experts think
Vasily Kashin, Director of the Center for Complex European and International Studies at the National Research University Higher School of Economics, noted in a conversation with Izvestia that the Chinese are likely to prepare some support measures for some of their regions that specialize in the production of specific products.
- In parallel, the Chinese authorities will try to increase their presence in alternative markets, as well as retaliate against the United States. They may concern bans on exports of raw materials and components for industrial production where the PRC has monopoly positions or very strong positions on the world market," the Chinese expert explained.
He added that traditionally the blow is dealt to those exports that are the most politically sensitive.
- These are agricultural and food products. China likes to ban imports of wine or other products in retaliation. Luxury goods can also be banned - something that is produced in the territory of Western countries, but at the same time the cessation of supplies to the country does not cause social problems, because mass consumers do not buy them," said the political scientist.
According to the expert, Beijing may take additional retaliatory steps not in the sphere of trade, but in the sphere of pressure on American businesses operating inside China.
- Trade is only a small part. There are tens of thousands of American companies operating inside the PRC, receiving revenues of tens and hundreds of billions of dollars a year. These are huge volumes of business. Not all of them are unique or high-tech," the specialist said.
He explained that there are huge hotel chains, catering, there is room for retaliatory strikes on sales of American businesses inside China.
- Beijing has hinted at such a possibility. US policy toward the PRC will tighten dramatically, but we'll see if these threats by Trump are fully realized. If so, it will mean a certain political choice," the analyst believes.
Kashin emphasized that there is a colossal base of US-China economic cooperation accumulated since the late 1970s, until now business is still trying to influence decisions.
Tesla plant in Shanghai, China
- Even businessman Ilon Musk, who is close to Trump, has a huge business in China. Tesla cars are made with reliance on Chinese components. Trump may be forcing the process to cut off all the loose ends at once. Otherwise, China-related businesses will be trying to lobby indefinitely to mitigate the situation, let's see how successful they are. If the president-elect cuts ties, everyone will have to make a choice," the political scientist concluded.
Director of the ISAAA of Moscow State University. For his part, Alexei Maslov of Lomonosov Moscow State University notes that American experts from various strategic centers "subtly hint that a 'grand bargain' with China under Trump is possible."
"Yes, and some Chinese politicians are very hopeful about this deal. Beijing is keeping the 'window of opportunity' open. These 'probes' are being made at various levels. And it is done in order to generate nervousness between Russia and China," the Chineseist is sure.
According to the political scientist, this is a perfectly thought-out game.
"It is done in order to tie China's hands and force it to be more malleable in negotiations with Washington. Through gullible Russian experts to hint at a super deal between Beijing and Washington to the detriment of Moscow, and to make Chinese experts worry about the gradual normalization of relations between Russia and the United States and 'turn back,'" the expert explained.
The specialist disagrees with such a formulation.
"In fact, a very powerful anti-China team of future ministers and advisers is being formed under Trump. The anti-China restrictive policy will be in the center of attention of the US. And the methods of pressure on China will become tougher and more sophisticated," the analyst believes.
At the same time, Maslov noted that Beijing has great leverage against U.S. sanctions. According to the Chineseist, first of all, the PRC will limit interaction with the US in the field of high technology, as well as, possibly, the supply of rare-earth metals or a number of components containing these rare-earth metals.
"But most importantly, it will reduce food purchases from the US, which will hit ordinary American farmers, as it was, for example, in 2022," the expert summarized.
