Experts are concerned that China would retaliate strongly against American companies with a whole new list of tactics that could hurt the US economy, after Trump increased tariffs on Chinese imports worth $200bn.
The Chinese Commerce Ministry stated that although it hopes everything would be resolved, it would be taking countermeasures for now. However, economists are optimistic, stating that US imports Chinese goods around $500bn, whereas China only imports American goods worth $130bn. US has the advantage here. LudovicSubran, who works for Euler Hermes, agreed to this saying, China has lesser avenues to apply pressure.
However, economist Jacob Kirekegaard warns that China could play dirty, since it was a powerful authoritarian dictatorship, and hurt American businesses.
China can respond in many ways much more deadly to American companies. The whole tariff war is based on wrong assumptions and ignores the engagement rate of American businesses in China.
Currently, American manufacturers have already made large investments in China. These could be at risk if China decides to strike back.
They could order surprise inspections, launch investigations, toughen customs processes and a variety of such measures. They could even stop American investment entirely,, which would turn out to be a major problem for American businesses.
For manufacturers, this could skyrocket their costs.
Providers of professional services could also face tough times if China decides to tighten up regulations and reduce opportunities for Americans to conduct business in China.
The biggest measure would be if repatriation of profits were to be controlled.
China could also utilize its media to wage a smear campaign against American products. With economic patriotism being high in China, American products like Apple iPhones, Starbuck Coffees, Boeing jets and GM cars could all face massive drop in sales.
China could also manipulate currency markets to adjust them against adverse tariff impact. For years, China has ensured the Yuan’s value did not fall to unsustainable levels. A reversal of this policy could disrupt markets heavily.
China can also stop purchasing US debt, something that is likely to hurt the US economy badly. However, it is unlikely, given how that would depreciate China’s current holdings of US debt.
Even if everything goes back to normal, Trump has eroded trust in the system. That could be a major economic downfall for both countries.