Daily Management Review

US-China trade war: China is forced to resort to uncommon measures


07/10/2018


The exchange of blows in the trade war between the United States and China is getting tougher. The US has introduced duties on goods, the total value of which is estimated at almost $ 40 billion. In turn, China imposed import duties on goods from the US.



Mstyslav Chernov
Mstyslav Chernov
"The US unleashed the biggest trade war in history," the Commerce Minister in Beijing protested. "We are compelled to take the necessary response measures."

Duties on electric vehicles and agricultural products

Two weeks ago, China presented a list of commodity groups, to which the duties will be automatically raised. Among other things, it included electric vehicles and agricultural products. The United States exports huge amounts of soybeans, fruits, wheat and wine to China. Farmers in predominantly agricultural states are already worried that they will become the first victims of the beginning of the trade war.

American duties, however, affected primarily electrical goods. President Donald Trump wants first of all to prevent China from turning into a technology supplier, and to punish this country for stealing ideas in the past.

US tariffs can harm US firms

The package of these measures can, however, have an effect that Trump did not think about. China is not only the world's largest producer of electronics, but also one of the key points in the intermediate and final production. Therefore, US measures can affect, among other things, supply chains of firms for which China is only an intermediate point in the global production process.

Many of these companies are located in the US and have such well-known names as HP, Dell or Apple. Violation of their production links can lead in the affected sectors to a chain reaction around the world. And since the price factor in relevant products is of great importance, the duties can cause significant damage to these companies.

Ban on American companies and movies

So far, the counterparts in this third phase of the trade war have established duties of comparable magnitude, but in the coming weeks the nature of the exchange of blows will change. Trump already threatened with the introduction of new duties on goods worth $ 200 billion. China will no longer be able to react to this with its duties: it simply does not import as many goods from America.

Therefore, other methods of retribution are discussed. China, for example, can limit the provision of loans to the US government. The state department of the country on supervision of currency transactions buys mainly US government bonds to invest dollars earned from trade. The ban on the activities of some American companies and on the screening of American television series is also discussed.

Already, there is a decline in the exchange rate of the Chinese currency. If this process continues, then Chinese goods will become cheaper in the world market. In addition, China does not need to start a propaganda company and present America as an enemy. As a result, there may be a boycott of American goods and broken glass in Starbucks.

Chinese politicians want to avoid further escalation

Yet, Chinese politicians do not want a full-fledged conflict, as civil servants in Beijing say. They still want to avoid escalation and continue to send implicit signals about compromise proposals to Washington. This can already be seen from the wording of the Ministry of Trade: the time has come for the adoption of "necessary" countermeasures, the new duties are "consistent" with the US blow, the government is trying to respond "adequately".

source: berliner-zeitung.de






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