Just like any other war, there will be collateral damage. The looming trade conflict between China and the United States will be no exception. Already concerns are growing that major US and Chinese corporations will be hit by the planned tit-for-tat tariffs, which were announced earlier this week, as well as European and Asian companies.
On Tuesday, Washington revealed plans to target 1,300 Chinese imports, while Beijing retaliated hours later with its own list of 106 US products. Extra duty would see each side slapping at least US$50 billion on selected goods.
Then on Friday, China warned it was prepared to respond with a “fierce counter strike” of fresh trade measures if the US decided to follow through on President Donald Trump’s threat to raise an additional $100 billion in tariffs on Chinese imports.
“This is what a trade war looks like, and what we have warned against from the start,” said Matthew Shay, the president of the National Retail Federation, the world’s largest retail trade association, based in Washington.
“We are on a dangerous downward spiral and American families will be on the losing end,” he added in a statement reported by Reuters.
The mouthpiece of China’s ruling Communist Party, the People’s Day, also stressed that Trump’s planned ‘Trade War Beyond The Shore’ could affect major US blue-chip brands, including Apple, Boeing, Intel, Qualcomm and Texas Instruments. “They would be among the biggest losers,” it reported.
At the same time, China Eastern Airlines, TCL Multimedia, the country’s largest TV manufacturer, COSCO, one of the biggest shipping lines in the world, and Air China face dwindling sales and cargo volumes if the dispute escalates.
Significant slowdown
“[A full-blown trade war] would have a more pronounced effect,” Oxford Economics, a global leader in forecasting and quantitative analysis, stated in a note to clients.
“The US and China would suffer a significant slowdown in real GDP [gross domestic product] growth – a cumulative loss of around one percentage point.”
As for the wider global perspective, companies in Europe and Asia could be dragged into the dispute.
The German auto giants BMW and Daimler’s Mercedes build SUVs in the US, and then export them to the world’s second-largest economy. Both groups could face an additional 25% on export duties.
“This is essentially a tax on southern German automakers, specifically BMW and Mercedes SUVs,” Arndt Ellinghorst, an analyst with Evercore ISI, a global consultancy and financial firm, told Bloomberg News.
But that would be just the tip of the iceberg if the rhetoric turned into reality.
Earlier this week, the Brookings Institution, a Washington-based think tank, outlined the risks when it pointed out that third-party countries and companies could be sucked into a fully-fledged trade war.
Using “tariffs,” it argued, was the wrong approach and would inflict “unnecessary pain.”
“Two-thirds of world trade now occurs through global value chains that cross at least one border during the production process,” David Dollar, a senior fellow of foreign policy, global economy and development at the John L. Thornton China Center, and Zhi Wang, the lead international economist for the research division at the US International Trade Commission, said in a Brookings Institution report.
“As a result, the typical ‘Chinese product’ that the United States imports has a lot of value-added from countries other than China. It often has value-added from US firms with operations in China, as well as from parts suppliers in Japan, South Korea, and Taiwan,” they continued.
“Hence, in any trade war between the United States and China, there will be collateral damage on third countries.Tariffs will cause a lot of unnecessary pain for consumers and third countries, not to mention American firms caught in the crossfire,” Dollar and Wang added.
At least, on Friday, there were signs that the Trump administration was looking to ratchet down the verbal exchanges.
While the US Treasury Secretary Steven Mnuchin admitted there was still “a level of risk” that the tariff dispute could erupt into a full-scale trade war, he was “cautiously optimistic” that Beijing and Washington could resolve their differences through negotiations.
“This has been very well organized. Our strategy is very clear,” Mnuchin told CNBC. “[But] I’m cautiously optimistic we’ll be able to work it out.
Defend interests
“On the one hand, we are willing to continue negotiations,” he added. “On the other hand, the president is absolutely prepared to defend our interests.”
For now, key partners inside the European Union are calling for restraint. The European Commission, the EU’s executive arm, confirmed that it was in high-level talks to alleviate the deteriorating situation.
“The EU believes that measures should always be taken within the WTO [World Trade Organization] framework, which provides numerous tools to effectively deal with trade differences,” Daniel Rosario, a Commission spokesman, was quoted as saying. “We call on the relevant parties to ensure WTO compliance of their trade actions.”
In Beijing, the language was more bellicose. Global Times, the state-owned tabloid, did not mince its words when describing the news that the White House was considering a further $100 billion in tariffs in addition to the $50 billion already proposed.
“China won’t back off. The Chinese society will unite around the Party and the government to weather through the hardships, which is unparalleled for the US. More importantly, China is on the righteous side safeguarding multilateral trade rules,” Global Times said in an editorial.
“Most Americans have their life linked with China-US trade. As the tensions escalate, we want to expand the trade war to all Americans, so that they have to choose whether to support Trump’s unscrupulous move or to hold the president accountable,” it added.
Picking a path through a minefield littered with pugnacious phrases might yet prove to be the biggest challenge before cooler heads prevail. If not, the shock waves will reverberate across the global economy.
Arthur Micol
For umpteen years the US has been bullying and pushing around the world and Trump and his team are the ultimate bullies.
There is a chance there will be negotiations and not all the suggested sanctions implemented. The tariffs will increase the prices to the consumers and US products will be harder to sell abroad. With the huge US debt, only a 1% increase in the interest rate will hurt the US economy.
What I do not understand is why China still have more than one trillion dollars in US Treasury Bonds, when the tariffs will reduce the need for US dollar and the Petro Yuan avoid the US dollar for payment of oil. The many Chinese bi-lateral currency swap agreements reduce the need for US dollar. China should reduce the US dollar holdings and invest it along the New Silk Road to create growth and demand to compensate for lost US markets.
By having huge holdings in Treasury Bonds, China is indirectly funding the US regime change and war machine. Japan has reduced their US dollar exposure with 20%+, China should do the same.
Falk,
Just to explain. The petro-Yuan is a ‘hybrid’. It is under experiment. It is undergoing a ‘road test’. Thus it has incorporated within it a sort of ‘insurance’ like a guarantee of convertibility by way of a 3 way option. Thus it is like a monetary triangle ‘derivative’ of a commercial note where you can tender the ‘petro-Yuan’ derivative and cash out in Yuan, Yankee$ or gold equivalent – so China must hold a banker’s equivalent of all three. In future when the petro-Yuan is accepted as good as gold on its own accord then there is no need for the triad derivative at all. It will assume its own status as fiat money. But from what I have read the Chinese would comply with its undertaking to revert back to pre-WWII gold convertibility as the universal standard of global inter-currency conversion.
The Yuan is sort of tied to a basket of currencies comprising mainly of Yankee$. I do not know the exact formulae but the Yuan/$ must stay within a set range to ensure that US-China trade is at a set ‘fix’ to maintain export/import stability in trade settlements.
Yes, it is possible for China to use its $ holdings as a an economic weapon to bring the $ down and to cause hyper-inflation as in drug overdose, but that is not business wise. The Chinese have MONEY as their God. It is all about making money. Those who make money are those with ‘cash’ when the property and securities market crash. The U.S. assets will crash sooner or later because the stage will come when the music stops and those who spend more than they earn and do not save and the world finds out that your quantity of physical gold is a fraud. Be patient and save and make sure you have the cash to buy in when the market crashes.
In anycase the US is causing inflation by raising tariffs – go to any working class suburban shopping centre and check out where the consumer goods come from.
Vincent Cheok
"“This has been very well organized. Our strategy is very clear,” Mnuchin told CNBC."
Are you kidding? Trump just walked into a meat grinder. Just watch.
CCP is now trembling in their own pee… US can live without China’s trade but the Chinese economy cannot! China greatly needs the income from the US economy driven by consumerism. Look at China’s empty malls/buildings… lol US can always divert trade inputs from India, Thailand, Japan or Vietnam. While China has no other option. China is losing big time! Let China feel the losses like a dog tucking its tail between its legs… China cant even dare to shoot down the US carrier sailing right in front off their unlawfully reclaimed islands because they know they will blown up to kingdom come once they touch any US warship… China will pee on its tail tucked between its legs when this will happen… China bullied all the other small countries, but when US stood on its front, China was just showing all its teeth but too coward to bite… Poor China… Shame, shame, shame…
Indeed like typical bullies they buckle when confronted. I hope Trump takes them to the cleaners.
Sunny Nair stupid Indian see how India buckled in Doklam.
A US-China trade war may not be a bad thing for the world at large. It strengthens the negotiating position of all countries versus both USA and China.
Good to see the Chinese rising in power, and help bring balance and greater sanity to international relations. If the US resorts to warmongering, as it so often does, it’d be facing global resistance of a magnitude that would bring the US empire down. Best for the violent imperial leech to retreat, build walls all around, and stay behind them. Good damned riddance!
Vain Lame
Listen Malay tard we didn’t buckle in Doklam which is why Modi has informal summits with Xi Jin Ping a courtesy extended to no one else in Asia. Let me know when another asian leader gets treated the same way by the Chinese stupid Bhumiputran.
Sunny Nair too much cow pee.