Trump’s plan to impose additional tariffs has led to speculation that China may have a better strategy to counter these moves. During Trump’s first term, China faced high tariffs on thousands of products, instigating a trade war. The proposed tariffs on Chinese goods could exceed 60% this time around.
The general observation is that China’s economy is now more vulnerable to U.S. pressure than it was back then. The slump in the real estate market, losses in the banking sector, and local government debt issues have weakened China’s economy. Even the demand for domestic goods has declined, increasing the dependence on foreign goods.
The New York Times (NYT) has purported that China possesses sufficient resources to revive its economic vigor. The Chinese government holds substantial funds for economic stimulus, and the communist system allows swift policy implementation. China recently announced a stimulus package worth billions of dollars.
Furthermore, China has emerged as a leader in clean energy technology, particularly in electric vehicles and solar panels. Even with tariffs, it will be difficult for the U.S. to find alternatives for these products. Some experts argue that the Biden administration’s export controls paradoxically have bolstered China’s self-sufficiency.
Since the trade war, China has become less dependent on the U.S. market. High tariffs prompted Chinese companies to diversify their export markets to Southeast Asia and Latin America. The share of Chinese products in U.S. imports has recently dropped from 20% to 13%. China has also shifted agricultural purchases to countries like Brazil and Argentina to become less reliant on the U.S.
Analysts believe that China has gained enough experience to respond effectively to tariffs this time and possesses strong countermeasures. Some predict that China could control the export of key minerals as part of its strategy. Scott Kennedy, an expert at the Center for Strategic and International Studies (CSIS), explained that China now holds more leverage than it did during Trump’s first term. He noted that if the economic tensions escalate, China could use this leverage to affect the U.S. economy.
There is no guarantee that China’s economy will emerge unscathed. Larry Hu, chief economist at Macquarie Group, stated that China’s exports could decline by about 8% if the U.S. imposes additional tariffs. Its economic growth rate would also drop by 2%. This impact could be even more significant if China faces obstacles in exporting products through countries like Mexico.
Private companies account for a significant portion of China’s exports and are quicker to respond to market changes than state-owned enterprises. This may further strengthen the Chinese economy. Nicholas Lardy from the Peterson Institute for International Economics (PIIE) noted that the structure of China’s economy has evolved, enhancing its adaptability.
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