Trade war: Trump fires new $100 billion tariff salvo but China too has options

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Published: April 6, 2018 1:04:37 PM

After China's retaliatory tariff imposition on 106 US products, Donald Trump is threatening yet another $100 billion tariff on Chinese imports. China would not want this trade war to escalate but it can fight it by unconventional means.

Trumps threatens China with new 0 billion tariffAs Trump fires 0 billion tariff salvo, the conventional options are limited to China (Image: Reuters)

For now, the fears of a full-blown trade war have receded but the possibility of hurting each others’ trade looms large. In response to Trump administration’s additional tariffs on select Chinese products and a ‘big fine’ on over an alleged theft of intellectual property, China slapped a reciprocal tariff on 106 US products including soybean, which could hurt Donald Trump’s voter base in Iowa.

Now after China’s retaliation, the Donald Trump is threatening yet another $100 billion tariff on Chinese imports. The further tariffs were being considered “in light of China’s unfair retaliation” against earlier US trade actions, Reuters quoting Donald Trump’s White House statement reported. Some analysts suggest that after recent imposition of an additional tariff on US products, Beijing has run out of trade war weapons and further retaliation could end up hurting China.

However, China does have unconventional means for countering US’ offensive. Even as China does not want this trade war to escalate, it has the “ability to make life difficult for a large number of American businesses”, Cornell University economist Eswar Prasad told the New York Times. He added that China has unconventional weapons not covered by traditional trading rules. This indicates that China may resort to Guerrilla warfare instead of the full-blown trade war.

For instance: Apple’s flagship iPhone is assembled in Zhengzhou and sold in Shanghai. But the profit goes back to California. Here, China has the option of shutting down iPhone plants by finding fault and tightening regulatory norms. Another way China could hurt the US is by punching a hole in the bond market. China owes more than $1 trillion of US debt. If China decides to sell these debts, it would be problematic for the US.

After a week of escalated tit-for-tat trade tensions between the US and China, the US dollar was stronger and the Chinese yuan weaker, which indicate that the immediate brunt of the global trade war is being borne by Beijing.

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