Last week, China said it would fight back “at any cost” after President Donald Trump threatened to slap tariffs on an additional $100 billion of Chinese goods. That’s on top of $50 billion already announced.
7 ways China can hit the US on trade without raising tariffs
But how is China going to fight back?
The US exported a little more than $150 billion of products to China last year. With Trump having already threatened tariffs on $150 billion worth of Chinese trade, there’s not much left for Beijing to hit back with if it decides to match Trump’s threats, and he decides to go yet higher.
On the other hand, the US imported more than $500 billion worth of stuff from China last year.
This means Chinese government might have to get creative if it wants to keep up with the tit-for-tat.
Inkstone has compiled seven ways China can do just that, according to history, economists… and Chinese nationalists.
1) Dump US bonds
China is the US’s largest creditor, holding about $1.2 trillion US treasury bonds, debts issued by the US federal government to finance itself.
Dumping them can drive bond yields higher, making it more costly for the US government, businesses and consumers to borrow, thus slowing the economy.
But a sell-off would be mutually destructive: not least by strengthening China’s currency, the yuan, against the dollar and hurting its own exports.
Zhang Yuyan, a researcher at the state-run Chinese Academy of Social Sciences, said Monday at a forum that the possibility that China would sell off its US Treasury holdings was “very small.”
2) Devalue the yuan against the dollar
A yuan depreciation will make Chinese exports cheaper for American buyers, partly offsetting the impact of the tariff hikes.
Beijing is now studying the potential impact of a gradual yuan depreciation, Bloomberg News reported on Monday, citing people familiar with the matter.
3) Boycott American goods
After a territorial dispute between Beijing and Tokyo escalated in 2012, anti-Japan protests and boycotts broke out across China, causing a slump in Japanese car sales in the country.
After the newly-elected Trump promised to impose a 45% tariff on Chinese imports in 2016, state-run and nationalist Chinese tabloid the Global Times suggested carrying out a similar boycott against US products.
“A batch of Boeing orders will be replaced by Airbus,” the party-run newspaper said in an editorial. “US auto and iPhone sales in China will suffer a setback, and US soybean and maize imports will be halted.”
Chinese consumers are also big buyers of iPhones, Kindles, Starbucks coffee and McDonald’s burgers.
4) Cut back on tourism
South Korea saw a plunge in tourism after it angered Beijing by deciding to deploy US defence missile system THAAD in late 2016.
Chinese visitors to the country by an estimated 50%, reported South Korean news agency Yonhap.
The same tactic can potentially be used against the US, which saw 3 million Chinese visitors in 2016.
5) Punish US businesses in China
Foreign firms in China need to overcome various administrative hurdles to operate in the country, leaving them vulnerable to punitive bureaucracy.
For example, the Chinese authorities shut down dozens of the South Korean retailer Lotte Group’s locations in the country, ostensibly over fire-safety violations, after the company agreed to provide land for THAAD last year.
Christopher Balding, an economist at the HSBC Business School in Shenzhen, said the Chinese government could also make it more costly and time-consuming for US firms to renew licenses, borrow money and make investments in China.
6) Ban Hollywood blockbusters
China took down South Korean movies and soap operas from television and video streaming websites last year, also due to the deployment of THAAD.
China keeps a tight control over media and entertainment, enabling it to apply pressure on foreign filmmakers who don’t want to lose access to the world’s second-largest film market.
7) Boycott American celebrities
Some of the top NBA stars, including Stephen Curry, Dwyane Wade and Dwight Howard, have made a fortune advertising for Chinese-brand sneakers and mobile phones.
If what happened to K-pop stars last year provids any reference, the basketball players could all be ordered out of the Chinese market.
Balding says most of these largely symbolic tactics will have little real impact on an economy as big as the US.
It is also possible that Beijing will decide against all of them, for fear that they will hurt the Chinese economy and displease domestic consumers.
Liu Weidong, an expert on Sino-US relations at the state-run China Academy of Social Sciences, says the strong demand in China for American products makes it hard for Beijing to cut them off.
“Chinese people can stop travelling to South Korea, but they cannot stop watching Hollywood movies or going to American schools,” Liu says.
That’s American soft power at work right there.