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Trade war: What's in China's arsenal?

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BEIJING: China's latest retaliation against US tariff hikes - an increase on US$60 billion (S$82.1 billion) of US imports from June 1 - could leave China running low on ammunition in the trade war.

China imports almost four times less than it exports to the US, and Beijing already levies punitive charges on almost all US goods arriving in China - US$110 billion out of an annual total of US$120 billion.

So if Beijing raises its tariffs to 25 per cent on a range of US products, including liquefied natural gas, chemicals, fruit, vegetables and seafood, it may limit its room for manoeuvre.

Here are some other possible options:


"Tariffs are a self-inflicted wound. You are raising the import costs of your own producers," said professor of trade and investment at Harvard University Robert Lawrence.

However, in the middle of a trade war "economic considerations are secondary", he said, because "it is much more about posturing, bargaining and politics".

"Can China be seen to be passively accepting these measures from the United States?"

Cars and auto parts from the US face the prospect of a 25 per cent hike in duties.

Announced by Beijing in December, the measure was suspended at the beginning of the year but can be easily reactivated.

The sector, crucial for the US economy, also represents an important electoral base for Mr Donald Trump.


Mr Trump regularly accuses the Chinese central bank of lowering its currency rate to support exporting firms, but is it an option?

Mr Rajiv Biswas, Asia Pacific chief economist for IHS Markit, says no. "It is not a realistic strategy for China to try to mitigate a 25 per cent tariff by allowing further declines in the yuan," he said.

"A key priority for the Chinese government since 2015 has been to stabilise the exchange rate and prevent large capital outflows, in order to protect its foreign exchange reserves."


The Chinese could be encouraged not to buy American flagship products, such as the iPhone.

Amid frosty relations with Japan in 2012 or South Korea in 2017, boycott campaigns led to a 50 per cent collapse in sales for both countries' car brands in one month.


China is the largest holder of US debt (about US$1.2 trillion), but selling a big part of it would be risky because any destabilisation of the markets could undermine the value of Treasury bonds held by Beijing. - AFP