How China can hurt America in Trump's trade war

Rick Newman
Senior Columnist

The United States imports roughly $500 billion in goods and services from China each year. So if President Trump imposes tariffs on $150 billion worth of those imports—as he has threatened to do—there’d still be room to up the ante.

China only imports about $130 billion worth of US goods and services each year. So if China wanted to match all of Trump’s tariffs—as it has vowed to do—it would run out of imports to tax.

That would seem to give the United States an advantage in a trade showdown with China, which may be why Trump is bucking most mainstream advice and courting this trade war. But China can harm American interests in a variety of ways Trump may not be taking into account. “There are lots of different ways China can retaliate,” says Scott Kennedy, director of the project on Chinese business and political economy at the Center for Strategic and International Studies. “In the short term, China is certainly able to put a lot of pain on its targets.”

If Trump goes through with his tariffs, here are some of the things China might do in response, beyond matching tariffs:

Harass US companies operating in China. American firms have invested $256 billion in China since 1990, with companies such as Apple, Nike, General Motors, Ford, Starbucks and many others earning profits there that benefit shareholders back home. China can shut down foreign business at will, on pretexts such as safety violations or licensing snafus. As part of an ongoing dispute with South Korea last year, China shut down dozens of outlets of a Korean retailer operating in China. A few years ago, China punished Daimler, BMW and Audi for “antitrust” violations in what was really a campaign to get them to lower prices. American firms could find themselves subject to similar tactics.

Cause geopolitical trouble. The United States butts heads with China on a number of issues that aren’t commercial in nature, including the independence of Taiwan (which China views as part of China), a military buildup in the South China Sea and, of course, sanctions against North Korea. China could flex its muscles on any of those issues and take a harder line against American interests.

Impose bigger tariffs. Trump’s tariffs would generally be in the range of 25%. China could put higher tariffs on US imports to compensate for the smaller amount of imports. Trump could raise US tariffs in return, but if he did that, he’d be intensifying the pain for American firms and consumers purchasing those products, who’d be paying increasingly more for them.

Drive a wedge between the United States and other trade partners. China could sweeten its trade arrangements with European nations or others, as its relationship with the United States deteriorates. Many trade experts point out that the United States increasingly acts on its own under Trump, by withdrawing from the Paris climate accord and the Trans Pacific Partnership, for instance, and pursuing trade protections without consulting allies. Going it alone leaves other nations freer to act without concern for American interests.

Pull out of US business deals. China has about $140 billion worth of investments in the United States, which include partnerships and investments with US firms, along with Chinese-owned businesses operating here. The Chinese government has more sway over home-grown business interests than the US government does and could compel some of those businesses to pull out of deals in the United States.

Sell off US debt. China holds about $1.2 trillion in US government debt, which sounds like a lot, but it’s only 5.5% of all outstanding US debt. Some people worry that China could dump all that debt into markets, which would push interest rates up and cause other problems. But that could harm China more than anybody, which is why economists doubt it would ever happen. China’s currency, the yuan, would probably rise in value, harming Chinese exports. China would also become an economic pariah, shut out of parts of the global financial system. Meanwhile, other buyers of US debt would almost certainly materialize, even if it took a while for the dust to settle.

Exploit Trump’s political challenges. A tariff war would hurt businesses and consumers in China, just as it would in the United States. But Chinese President Xi Jinping may be in a better position to withstand the political pressure likely to mount in a genuine trade war. “Xi has no internal opposition, and you won’t see Chinese automakers or food growers on television complaining about a trade war,” says Kennedy. “Trump’s political position is more precarious. There have been and will be plenty of stories of farmers, auto workers, steelworkers, consumers and others who will potentially suffer in a trade war.”

Trump’s argument, of course, is that China is already harming American interests, which is why dramatic remedies are needed. What Trump hasn’t done is explain why the gain is worth the pain. And the pain is likely to come first.

Confidential tip line: rickjnewman@yahoo.com. Encrypted communication available.

Read more:

Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman

Follow Yahoo Finance on Facebook, Twitter, Instagram, and LinkedIn

  • German govt accepts court ruling on Brexit, regrets looming divorce
    News
    Reuters

    German govt accepts court ruling on Brexit, regrets looming divorce

    The German government accepts a ruling by the European Union's top court that the United Kingdom can unilaterally revoke its divorce notice, a spokeswoman said on Monday, adding that Berlin continued to regret Britain's decision to quit the EU. The European Court of Justice's ruling has

  • Britain's May is said to withdraw parliamentary vote on her Brexit deal
    News
    Reuters

    Britain's May is said to withdraw parliamentary vote on her Brexit deal

    British Prime Minister Theresa May abruptly decided on Monday to pull a parliamentary vote on her Brexit deal, throwing Britain's plan to leave the European Union up in the air on the eve of the vote after repeated warnings from lawmakers she faced a rout. The move thrusts the United Kingdom'

  • U.N. members adopt global migration pact rejected by U.S. and others
    News
    Reuters

    U.N. members adopt global migration pact rejected by U.S. and others

    U.N. members on Monday adopted a deal aimed at improving the way world copes with rising migration, but almost 30 countries stayed away from the ceremony in Morocco. The pact, meant to foster cooperation on migration, was agreed in July by all 193 U.N. members except the United States, but only 164

  • Catalan leader slammed for urging 'Slovenian route' to secession
    News
    AFP News

    Catalan leader slammed for urging 'Slovenian route' to secession

    The Spanish government on Monday criticised Catalonia's separatist president for urging the region to follow the example of Slovenia, which sparked a brief armed conflict when it declared independence unilaterally from Yugoslavia in 1991. The Catalan government "knows very well that if there

  • Separated Families Are In The Running For Time Magazine's 2018 Person Of The Year
    Lifestyle
    HuffPost

    Separated Families Are In The Running For Time Magazine's 2018 Person Of The Year

    Time magazine on Monday announced its shortlist of 2018 Person of the Year

  • 'Yellow vest' protests stunt French growth, Macron under pressure
    News
    Reuters

    'Yellow vest' protests stunt French growth, Macron under pressure

    The anti-government protests convulsing France will slow growth to close to a standstill in the final quarter, the central bank said on Monday, complicating President Emmanuel Macron's task of finding concessions to placate the "yellow vest" movement. The Bank of France on Monday forecast

  • Nadia Murad: from jihadists' captive to Nobel winner
    News
    AFP News

    Nadia Murad: from jihadists' captive to Nobel winner

    Nadia Murad survived the worst of the cruelties and brutality inflicted on her people, the Yazidis of Iraq, by the Islamic State group before becoming a global champion of their cause and a Nobel Peace Prize laureate. Murad, who was taken hostage by IS in 2014 but escaped, on Monday became the first

  • India central bank chief quits after spat with government
    News
    AFP News

    India central bank chief quits after spat with government

    Reserve Bank of India (RBI) governor Urjit Patel cited "personal reasons" for his decision, but media reports have said that he was annoyed by repeated government efforts to influence central bank policy. It comes after Patel's deputy, Viral Acharya, warned the government in a strongly

  • Nobel Peace prize laureate Mukwege worried Congo vote could lead to war
    News
    Reuters

    Nobel Peace prize laureate Mukwege worried Congo vote could lead to war

    Presidential elections in Democratic Republic of Congo this month could lead to conflict if they are not free, fair and peaceful and indications show that they will not be, Nobel Peace Prize laureate Denis Mukwege said on Monday. The elections on Dec. 23 will mark Congo's first democratic transfer

  • May to address MPs on probable Brexit vote delay
    News
    AFP News

    May to address MPs on probable Brexit vote delay

    British Prime Minister Theresa May will on Monday address MPs amid reports she is set to postpone a parliamentary vote on her Brexit deal in a U-turn on the eve of what was expected to be a crushing defeat. The pound fell sharply against the dollar on the reports, which increased uncertainty over whether

  • Second session of 14th Parliament sitting starts on March 11 next year
    News
    Malay Mail

    Second session of 14th Parliament sitting starts on March 11 next year

    PETALING JAYA, Dec 10 — The second session of 14th Parliament sitting will convene on March 11, 2019, according to Yang Di-Pertua Dewan Rakyat. The first meeting for Dewan Rakyat will begin on...

  • Moscow residents turn to car-sharing after parking crackdown
    News
    Reuters

    Moscow residents turn to car-sharing after parking crackdown

    Tens of thousands of Moscow residents have taken up car-sharing to combat soaring parking costs and a dwindling number of spaces, a trend that has made the Russian capital one of the world's fastest growing markets for such schemes. JP Morgan put the number of daily car journeys at 60,000 this autumn

  • After strike, German rail union seeks talks to end pay dispute
    News
    Reuters

    After strike, German rail union seeks talks to end pay dispute

    BERLIN/FRANKFURT (Reuters) - German rail workers staged a four-hour stoppage on Monday but their union said it would now pursue talks with operator Deutsche Bahn to resolve a dispute over pay. Long-distance rail traffic came to a standstill and commuter and freight trains were disrupted after the walkout

  • Britain no longer has 'a functioning government' - Labour Party
    News
    Reuters

    Britain no longer has 'a functioning government' - Labour Party

    Britain's main opposition Labour Party said on Monday the country no longer had "a functioning government" and its plans to leave the European Union should now take centre stage in any future talks with the bloc. "The government has decided Theresa May's Brexit deal is so disastrous

  • News
    Reuters

    EU blacklists nine over rebel Ukraine vote, no new Russia sanctions seen

    The European Union on Monday blacklisted nine locals involved in rebel elections in east Ukraine last month but signalled no further punitive measures against Moscow over the latest flare-up of tensions with Kiev in the Azov Sea. Instead, the EU's foreign ministers meeting in Brussels said they

  • Police Dog Shows These Boots Are Not Made For Walking
    News
    HuffPost

    Police Dog Shows These Boots Are Not Made For Walking

    South Dakota winters can be brutal, with an average annual snowfall of 41

  • Abdul Aziz Bari: Police recorded my statement over plot to oust Perak MB
    News
    Malay Mail

    Abdul Aziz Bari: Police recorded my statement over plot to oust Perak MB

    IPOH, Dec 10 — State executive councillor Abdul Aziz Bari said police today recorded his statement over the alleged plot to remove Mentri Besar Datuk Seri Ahmad Faizal Azumu. He said he received a...

  • Climate change creates mutant fugu, a deadly Japanese delicacy
    News
    Reuters

    Climate change creates mutant fugu, a deadly Japanese delicacy

    The furtive bidding, a relic of a time when fish traders wore kimonos whose sleeves obscured their hands as they signaled their bids, is part of the insular world of Japanese pufferfish, or fugu, a fish best known for its ability to kill a person in as little as a few hours. When a supermarket in western

  • Brazil makes official intervention in state bordering Venezuela
    News
    Reuters

    Brazil makes official intervention in state bordering Venezuela

    Brazilian President Michel Temer has signed a decree making official a federal "intervention" in the state of Roraima which borders Venezuela, the government's official newspaper said on Monday. The person in charge of the intervention will be Antonio Denarium, the governor-elect of Roraima

  • Kit Siang: Anti-ICERD rally whets Hadi’s appetite for power
    News
    Malay Mail

    Kit Siang: Anti-ICERD rally whets Hadi’s appetite for power

    KUALA LUMPUR, Dec 10 — DAP adviser Lim Kit Siang today said that PAS president Datuk Seri Hadi Awang will no longer be satisfied being a kingmaker after making Umno play second fiddle at...

  • Despite PM’s snub, DAP MP says third vote won’t trigger racial conflict
    News
    Malay Mail

    Despite PM’s snub, DAP MP says third vote won’t trigger racial conflict

    KUALA LUMPUR, Dec 10 — There is no danger of racial clashes if Malaysia decides to bring back the “third vote” or local government elections instead of having government appointees, DAP MP...

  • Shafie: I’ve already declared assets to MACC, but I’ll do it again
    News
    Malay Mail

    Shafie: I’ve already declared assets to MACC, but I’ll do it again

    KOTA KINABALU, Dec 10 — Sabah Chief Minister Datuk Shafie Apdal will be declaring his assets to the Malaysian Anti Corruption Commission soon, he said, after it was reported that he was among 13...

  • UN proposes Yemen rebels withdraw from Hodeida for joint control with govt
    News
    AFP News

    UN proposes Yemen rebels withdraw from Hodeida for joint control with govt

    The UN has proposed Yemen's Huthi rebels withdraw from Hodeida as part of a ceasefire deal placing the flashpoint port city under joint control, according to a document seen by AFP Monday. The document, verified by two sources in a Yemeni government delegation at UN-brokered talks in Sweden, stipulates

  • Armenian PM wins snap vote by landslide
    News
    AFP News

    Armenian PM wins snap vote by landslide

    Armenia's acting Prime Minister Nikol Pashinyan has won a landslide victory in snap parliamentary elections, results showed Monday, cementing his authority months after sweeping to power in a peaceful revolution. The Prosperous Armenia party led by influential oligarch and former arm wrestler Gagik

  • China cracks down on unofficial Christian church
    News
    AFP News

    China cracks down on unofficial Christian church

    Dozens of members of a prominent unofficial Protestant church and their pastor have gone missing in southwest China after authorities raided their homes, churchgoers said Monday, amid increasing restrictions on religious worship. The police sweep occurred Sunday night, according to a statement from