By Joyce Yu
Philadelphia, PA–After the announcement of imposing tariff on $50 billion of Chinese imports, President Donald Trump threatened this week another $200 billion in tariffs. Chinese officials have responded with tit-for-tat tariffs, but some analysts say that China eventually could run out of items to target, and consider options outside simple tariffs.
China has a limited number of weapons to use in a trade war with the US, simply because it imports far less than it exports. China imported just $129.9 billion from the U.S. in 2016, compared with $505.5 billion in exports, according to the Census Bureau. But China does have several other measures in hand that, while not as likely to be implemented as simple tariffs, remain harmful.
In a note report published earlier this year on potential implications of a U.S.-China trade war, Goldman Sachs economists Alec Phillips and Andrew Tilton said China could employ other options including action against U.S. companies operating in China such as boycotts against Apple or Google parent Alphabet, currency devaluation, selling U.S. assets, Treasurys in particular, and changes on geopolitical issues, such as easing sanctions on North Korea.
And China has indeed cut its Treasurys holdings 10.2% since the peak in late 2013 but still is the global leader with $1.18 trillion on the books. Should China or others around the world continue to reduce their purchases of government debt, the U.S. is hoping that pension funds, insurance companies and private investors step into the void, according to a CNBC report.
The U.S. is also taking its own risks if it chooses to go ahead with imposing tariff on the $250 billion list which accounts for half of the $505 billion Chinese goods the U.S. imported in 2017. “We continue to have strong conviction that Trump’s second round of tariffs is all bark and no bite,” Beacon Policy Advisors said in its daily report.
Global stocks tumbled on the latest development with the Dow opening sharply lower by over 300 points on Tuesday. But veteran investor, billionaire Jim Mellon thinks a market correction is inevitable even without a US China trade war.
The trade war worries are “certainly having an effect on the market, but the market is reacting because it’s already far too expensive,” Mellon told CNBC’s “Worldwide Exchange” on Tuesday. “The U.S. is selling at 32 times cyclically adjusted price-to-earnings (PE) ratio, which is an all-time high. Surely it’s time for a major correction anyway.”
