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Be it Trump or Biden at the US helm, China steels itself for political crossfire

Be it Trump or Biden at the US helm, China steels itself for political crossfire
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For China, be it Donald Trump or Joe Biden at the US helm, the barrage of ‘political’ strikes may only intensify

Washington’s proposal this week to slap high tariffs on some signature Chinese exports has heightened concerns in the world’s second-largest economy as the front runners in November’s US presidential election – incumbent Joe Biden and challenger Donald Trump – are positioning to play tough on their side of the strategic trade rivalry.

And analysts are growing more fixated on China’s response to a potential return to the White House by Trump, the one who kicked off the 2018 trade war that still chills relations today.

They suspect Chinese officials may raise tariffs on American imports while seeking negotiations with Washington and strengthening trade ties in third countries if the former president returns to office and erects further curbs.

Trump could start by revoking China’s preferential trade status with the US and following through on his February pledge to raise tariffs on all imported Chinese goods by up to 60 per cent if re-elected, the Economist Intelligence Unit (EIU) said in a May 2 research note.

In taking a hard line against China, US politicians have long threatened to pull that preferential trade status, which has been in place since 2000 and is known as “permanent normal trade relations”.

The legal designation helped pave the way for China to join the World Trade Organization in 2001 and serves to reduce the cost of imported goods while offering greater certainty for US businesses to invest in China.

If past record serves as an indication, [Trump] will follow through. The cause could be unfair trade practices or anything else

Yun Sun, Stimson Centre think tank

Potential trade-related action by Trump would “disproportionately target China” and its automotive, information technology, and renewable-energy sectors, according to the EIU note. It added that Trump’s justification of such actions would probably involve China’s failure to meet targets for buying American goods under the first phase of the US-China trade deal in 2020.

Speculating on the likelihood that Trump’s threats could come to fruition, Yun Sun, director of the China programme at the Stimson Centre think tank in Washington, said: “If past record serves as an indication, [Trump] will follow through. The cause could be unfair trade practices or anything else.”

While the US-China trade war remains in effect after six years, straining economic relations across two presidencies, the Biden administration has engaged in dialogues with China but maintained a tough trade stance amid pressure from Congress and segments of the American electorate.

On Tuesday, Biden’s executive office dug its heels in by proposing new tariffs on imports of China-made goods such as semiconductors, electric vehicles (EVs), steel and batteries. The administration accused China of “unfair technology-transfer-related policies and practices” including “cyber intrusions and cyber theft”.

Chinese officials called the proposed tariff hikes a “political” move that would hurt already strained ties between the world’s two largest economies.

“Biden’s projecting a tough position on China during the election year obviously is a strategic move,” said Tang Heiwai, an economics professor at the University of Hong Kong. “The significant increase in US tariffs on Chinese EVs is more symbolic than having any substantial impact on China’s EV industry.”

Lu Xiang, a China-US expert at the Chinese Academy of Social Sciences in Beijing, also noted how domestic EV makers do not see the US as a major market, blunting any moves by the US government targeting them. EVs are relatively popular in China and Europe.

Trump pledged during his 2016 campaign to go after China for what he considered unfair trade practices. And Lu said that since the Biden administration never dropped the trade war, China has been “making psychological preparations for all types of situations”.

“There’s space for negotiations, though China can’t bet on negotiations,” Lu said, adding that, whatever China does, “I don’t think we would add to the drama”.

In response to Washington’s new tariff-hike proposal, a Ministry of Foreign Affairs spokesman in Beijing said on Tuesday that China would take “full necessary measures to safeguard its legitimate rights and interests”.

China might consider limiting exports of “critical inputs to the US”, as well as raising tariffs on imports from the US, said Bert Hofman, an honorary senior fellow on the Chinese economy with the Asia Society Policy Institute’s Centre for China Analysis.

And China might retaliate to “express its position”, according to Peng Peng, executive chairman of the Guangdong Society of Reform.

“On the other hand, we will try to reduce the intensity of confrontation in practical affairs and try to cause as little trouble as possible for the economic recovery,” Peng said.

Chinese exporters, especially sellers of EVs and batteries, will keep funnelling goods to the US market through Mexico to avoid tariffs, said Liang Yan, chair professor of economics at Willamette University in the US state of Oregon. Since 2018, Chinese-invested factories in Mexico have increased their production of cars, among other products, for eventual sale in the United States.

Countries in Southeast Asia, Latin America and Africa will gain favour among Chinese exporters as offsets to any US business. China has tapped those “Global South” markets throughout the trade war, Liang said.

After kicking off in 2018, the trade war eventually led to tariffs on about US$550 billion worth of Chinese goods and US$185 billion worth of US goods. Trump’s administration had placed tariffs of up to 25 per cent on some Chinese imports.

The value of China-US trade last year amounted to roughly US$575 billion, and about US$427 billion of that came from Chinese shipments to the US, according to figures from the Congressional Research Service that cover only merchandise, not services.

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