With tensions mounting, President Trump’s trade war with China could reach a boiling point this week, due to his administration’s announcement of new tariffs on over $200 billion worth of Chinese imports to the United states.
In response, China has threatened to unleash its own retaliatory salvo by restricting exports to America. A senior foreign-policy reinforced this stance, stating that “China is not going to negotiate with a gun pointed to its head.”
These are strong words from a country who’s economy has been on a sharp decline since Trump began his “tariff talks”.
But if push comes to shove, can China afford to fight back?
President Trump, who claims that he wants to pursue diplomacy in dealing with Chinese trade negotiations, is also very clear that should the current high-level talks fail, he would be more than happy to fall back on his recently revealed tariffs – which have decreased to 10% from the original 25% numbers unveiled in August.
And if the Trump administration does indeed go ahead with the tariffs on a 195-item list of goods, totaling $200 billion in Chinese imports, the ongoing negotiations with Chinese trade officials will likely evaporate. In response, China would be forced to make good on their initial threat and impose restrictions on exports to the United States.
But honestly, from what I’ve seen over this last year, I believe this is the LAST thing that China wants to do…
…because the fact of the matter is, and as much as they’d like to deny it, the Chinese economy relies on the U.S. far more than the U.S. relies on China.
America is China’s biggest customer, and if they decide to shutter their doors to our consumers, they would be cutting off a significant source of income – while Americans could simply go elsewhere (while paying a slightly higher price).
The United States holds all the chips in this situation, and over the last few months Trump has used this to his advantage. The Chinese understand this too, but they also have to appear strong and independent to their own citizens.
So, when Trump threatens China with tariffs, China barks right back with their own restrictions – even if they are potentially self-damaging.
In this case, they will likely limit exports to the United States, something that would grievously wound the Chinese economy, hurting themselves much more than their American trade adversaries. But they absolutely have to do it if they’re going save face, and prove that the Chinese government follows through with its threats, repercussions be damned.
China’s manufacturing margins are already razor-thin, and as a country they simply cannot afford to reduce exports to the United States. The Chinese people currently bear the burden of their declining economy, and any further damage could sew the seeds of rebellion against the current government – something that the Chinese Communist Party fears more than anything.
Over the entire modern history of China, the government has always done a fantastic job at brainwashing its people, regardless of political party or ruling dynasty. They’ve pushed propaganda into every facet of life, creating a “domino” culture where the average Chinese citizen believes that their fate is tied directly to that of the ruling party.
If the government falls, so do the people.
This has created a society where the individual values the health of the state above all else, and the Chinese Communist Party uses this to their advantage while enduring economic hardships.
Any bleeding experienced by their economy since the trade war started has been diverted to the people, and in the past they’ve willingly carried the load.
However, as conditions continue to decline in China, opinions are starting to shift as well. Many Chinese are now starting to blame their blind-patriotism for the worsening local economy, and faith in the government has faltered slightly as a result. Chinese citizens have had a taste of the “good life” as they’ve lingered on the brink of true prosperity for years now, and don’t want to lose it for the sake of national pride.
A restriction on exports to the U.S., which seems inevitable by now, would fuel the fires of insurrection and exacerbate already dire circumstances – while the American economy would briefly stumble before carrying on to new heights.
So, as the week progresses and more tariff information is released by both sides of the trade war, just remember who controls the leverage in this situation. China’s deteriorating position could end up bolstering an American market that continues to rewrite the rulebook on international trade, one country at a time.
Even if we have to endure some short-term uncertainty, this could finally be the end of China’s woefully unfair trade practices, and the beginning of America’s reign as an economic kingmaker for decades to come.
