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There are many ways China can hit back at Trump: from taxes to probes
WITH US President Donald Trump ready to slap tariffs on US$50 billion worth of Chinese goods, the question now is how Beijing will respond.
China said on Thursday it would take "all necessary measures" to defend its interests, without mentioning anything specific. Expectations are growing that President Xi Jinping won't hold back.
"China's countermeasures will be extraordinary and unconventional," said Gao Zhikai, a former Beijing-based diplomat and former vice-president of crude oil giant CNOOC Ltd. "The reported US$50 billion of tariffs against China are weapons of mass destruction for trade. They will violate WTO rules and leave no way out for China."
Mr Xi also has domestic reasons to appear tough. He can't show any weakness after lawmakers in Beijing this month made him "supreme leader for life," said James McGregor, China chairman of the consultancy APCO Worldwide, which advises foreign companies.
"China is going to have to blast back," he said. Mr Xi's government "has an endless number of levers it can pull on foreign companies in China."
Among the range of options available, a number of them can be implemented straight away. Others, however, would take more time.
Here are some:
- Delays, inspections, investigations: China can quickly throw up non-tariff obstacles to trade, stepping up safety inspections and delaying paperwork essential for goods to make it into the country. It's an under-the-radar approach China has often used to advance its geopolitical goals in Asia.
During a standoff over the Scarborough Shoal in the South China Sea in 2012, China told tourists to avoid unnecessary travel to the Philippines and increased quarantine and inspection of fruit shipped from the country. In 2010, China stopped giving Japan export licences for rare earth metals needed for cars and electronics amid tensions over disputed East China Sea islands.
- Export taxes: Another option is for China to impose special additional duties on locally made products exported to the US Companies like Apple Inc and other consumer goods and electronics giants would suffer if China imposes a duty on exported products. Such a move would hit US companies and consumers hard, though would also risk hurting Chinese industry in the crossfire.
- Retaliatory tariffs: While China could hit Mr Trump with retaliatory tariffs, it has long said it wants to follow World Trade Organization rules.
The WTO's dispute settlement mechanism calls for the two sides to negotiate over a 60-day period, after which the case goes to a panel that can decide whether a retaliatory tariff is appropriate, according to Olga Boltenko, chairperson of the committee on commercial law and practice at the International Chamber of Commerce in Hong Kong.
Mr Xi's government has already launched a probe into US imports of sorghum, and is studying whether to restrict shipments of US soybeans. Those targets and other crops could hurt Mr Trump's support in some politically important farming states.
Government procurement: China can also threaten US companies' access to its government procurement market, which China says is worth 3.1 trillion yuan (S$644.86 billion). Companies from Boeing Co to Cisco Systems Inc would be at risk of losing out. Since China isn't a signatory to the WTO's rules on government procurement, it would be relatively free to employ this weapon.
"China has already replaced a lot of foreign service providers with domestic players in government procurement, and the potential trade war will accelerate that process," said Tao Jingzhou, a managing partner at Dechert LLP in Beijing.
- Squeezing US companies in China: Another quick way China can strike back would be to disrupt the operations of US multinationals in China.
That could include anything from actions by customs officials, financial regulators, quality inspectors, anti-trust bodies, environmental authorities, consumer groups or economic planning bodies.
This allows Chinese officials to deny they are targeting foreign companies, citing the need to adhere to local laws and regulations. After South Korea's Lotte Group agreed to sell the Korean government land for a US anti-missile system known as Thaad, Chinese authorities suspended operations at more than half of the company's stores in China for alleged fire safety violations.
- Thwarting Mr Trump on North Korea, opioids: A final, longer term option is for China to obstruct Mr Trump's ability to make progress on his other foreign policy goals.
Mr Trump has been clear that he expects China's help to rid North Korea of nuclear weapons and halt drugs that contribute to the US opioid crisis. In the future, he's likely to need it in dealing with Iran. BLOOMBERG