The United States-China’s trade war is escalating. But China may have more leverage than the United States thinks
As the trade war between the United States and China escalates, the biggest question is which side has more leverage and which aspects are willing to tolerate more pain.
Last year, China exported more than $400 billion to the United States, far exceeding the companies sold to China by American companies. That’s why the Trump administration claims it has all the leverage.
“The ball is in the Chinese court. China needs to reach an agreement with us. We don’t have to reach an agreement with them,” White House press secretary Karoline Leavitt said Tuesday.
“China wants what we have; every country wants what we have: American consumers. Or in other words, they need our money.”
However, the trade pattern is more complicated than this. Experts say China believes this can cause greater damage to the United States and tolerate the pain of the tariff war.
“There is indeed a lot of cards to play in China. It has a lot of leverage,” said Jia Wang, a senior researcher at the Institute of China at the University of Alberta.
The United States-China trade war is in full swing, with signs of backup on both sides. Andrew Chang explains how China absorbs the shock of U.S. tariffs and what this global economic disruption might mean for their position in the world order. Getty Images provided by images, Canadian Media and Reuters.
Changes in China’s response
Modern America – China’s trade focuses on technology and electronic products, from iPhone to computer to batteries.
But Wang said there are huge exports for key industrial inputs, as China controls most of the world’s production and therefore it is difficult to replace the United States. For example, with retaliatory measures, it bans exports of certain key minerals earlier this month.
The ban covers seven rare earth elements and magnets for defense, energy and automotive technologies.
“It does hurt the U.S. industry, and few countries can fill this gap,” she said. “There is not enough time for other suppliers to go public quickly and provide the amount the U.S. needs … so it’s a very powerful card that China can play with.”
Wang also pointed out that China is the second largest foreign creditor in the United States The United States holds approximately $760 billion As of January, in Treasury bills.
Unlike the trade war in which China quickly tried to negotiate tariffs in 2018, Beijing is taking a more aggressive approach this time.
“If the United States does want to resolve the issue through dialogue and negotiation, it will stop exerting great pressure, stop threats and blackmail, and speak with China on the basis of equality, respect and mutual benefit,” Foreign Ministry spokesman Lin Jian said in a briefing.
Meanwhile, Chinese President Xi Jinping is touring Southeast Asian countries to strengthen economic ties and regard China as a more reliable partner than the United States
U.S. exports are only part
Spencer Hakimian, chief investment officer at Tolou Capital Management in New York, said China has spent years diversifying its trading partners.
“China’s exports to the United States have been flat over the past 13 years,” he said, but during the same period, its exports to the rest of the world have increased by more than 80%.
He said China was more vulnerable to U.S. tariffs even during Trump’s first presidency. Today, China’s exports to the United States are $400 billion and its GDP is $20 trillion, he said.
“That’s two percent of their economy,” he said. “Yes, it’s painful, but when your economy grows 5% and you lose 2% at one time, it’s not as important as you really think.”
He said that once U.S. tariffs are imposed, China has developed a long-term strategy and what it will do.
He said that compared it to the chaotic approach in Washington, the tariff rates in Washington are constantly changing. When the market plummeted last week, Trump unilaterally cut things down with a spacious waiver. His top cabinet selections provide very different reasons for tariffs, sometimes even conflicting. Some say tariffs are permanent and aim to increase revenue, while others are the exact leverage ratio of trade concessions.
“I am an American, I support my country, I want Americans to win this trade war, but I also have to be objective because I am a global asset manager, and that’s my job. Obviously, the Chinese are ready for it.”
Higher pain tolerance
Two prominent Chinese experts published a research paper in the Washington Quarterly last week outlining Beijing’s emerging strategies.
Evan Medeiros and Andrew Polk wrote what they call China’s “precisely directed economic ammunition” that goes beyond critical mineral controls. This includes considering an antitrust investigation into foreign companies, they said. After the last U.S. trade war, China proposed a rule called the “Unreliable Entity List” which could make it more difficult for target companies to do business in the country.
U.S. President Donald Trump said China is manipulating its currency to cover up the impact of U.S. tariffs. Andrew Chang explains China’s strictly controlled currency exchange rate system and why currency manipulation is not so clear. Getty Images provided by images, Canadian Media and Reuters.
Most importantly, China has higher pain tolerance in the trade war.
Wang said the Chinese Communist Party does not have to worry that angry consumers have less economic impact on the trade war than the U.S. government.
“That’s still an electoral system considering all the chaos in the United States. So, President Trump and his cabinet, they still have to observe how the polls will respond to the situation,” she said.
Putting all of this together, China’s approach to the trade war began to form. Chinese leaders believe that even if it uses the crisis to strengthen ties with neighboring countries, it can cause real pain.
The hard part of any conflict is finding a way out. The United States seems to think it can force China to get on the table and give in exactly what it has to do with its terms. Just weeks after this trade war, it turned out to be more complicated than many people thought.
