June 19, 2019 / 2:32 PM / a year ago

EXPLAINER-U.S.-China trade war - the levers they can pull

 (Updates with reference to G20 presidents meet next week)
    WASHINGTON, June 19 (Reuters) - The trade war between the
United States and China has gone beyond tariffs as the countries
increase pressure on each other to cede ground.
    U.S. President Donald Trump and Chinese President Xi Jinping
will meet at the G20 summit in Japan later in June. Trump said
negotiations to end a trade war would restart ahead of the
summit, ending a six-week hiatus since talks broke down in early
    Since then, the relationship between the two countries has
deteriorated. Beijing has threatened retaliation after Trump
blacklisted Chinese telecom giant Huawei and as the United
States prepares to extend tariffs to cover almost all Chinese
    The prospect of a meeting that may defuse tension at the G20
has given financial markets worldwide a lift. But Trump has
previously warned that he may go ahead with a new round of
tariffs if the meeting does not result in progress on trade.
    Chinese state media has warned that Beijing could use rare
earths for its next strike in the trade war. The United States
relies on China for supplies of the rare earths to make a host
of high-tech products, from satellites to electric car
    Here are some other possible pressure points for each side.
    President Xi visited a rare earth firm in Southern China in
May, fueling speculation China could cut off supplies of the
metals, a key ingredient in high-technology consumer electronics
and military equipment, to the United States as part of the
trade war. China supplies 80% of U.S. rare earths.             
    China could impose tariffs on around $10 billion of U.S.
goods that as yet carry no retaliatory tariffs. 
    Beijing removed some tariffs on U.S. car imports in
December, and could reimpose them.
    China could raise tariffs from 25 percent on some U.S. goods
such as soybeans. China was the top U.S. buyer of soybeans until
the trade war, which came close to halting the flow altogether.
If it raises tariffs again, Chinese soy importers will seek more
supplies from Brazil and elsewhere, as they did in 2018, which
would hurt U.S. farmers. These are targeted tariffs, aimed at
the U.S. farming community that supported Trump's 2016
presidential election victory.
    High-tech items, such as semi-conductor manufacturing
equipment and chips, would be unlikely to feature on a list for
higher tariffs, because China cannot easily find alternatives.
    China has so far spared Boeing        passenger jets, its
single most valuable U.S. import, from tariffs. Chinese carriers
are expanding rapidly to meet rising demand, so tariffs on
Boeing could slow development of the domestic travel industry.
    China could buy more aircraft from France's Airbus         
instead of Boeing, which would make it more reliant on Europe
for a few years until it completes development of homegrown
commercial aircraft, COMAC's C919.
    China is the biggest holder of U.S. government debt, with
about $1.12 trillion in U.S. Treasuries. Beijing buys Treasuries
as a safe-haven for foreign exchange reserves.
    The editor in chief of China's influential Global Times
tweeted in May that "many Chinese scholars are discussing the
possibility of dumping U.S. Treasuries and how to do it
    A sell-off would hurt U.S. markets, driving up interest
rates and pushing up borrowing costs. The U.S. central bank
could lower its benchmark interest rate or buy debt to counter
the move.
    China sold the most long-dated U.S. Treasuries in almost
2-1/2 years in March. But most China experts say Beijing is
unlikely to undertake a big sell-off because that would lower
the value of China's foreign exchange reserves. The Chinese
would be hard-pressed to find a safe alternative investment with
a good yield.            
    Some analysts have floated the idea of a one-off devaluation
of the Chinese currency to make the country's exports more
competitive despite U.S. tariffs. But that would spook foreign
and domestic investors and give the United States ammunition to
sanction the country for currency manipulation.
    "That is not retaliation. That is escalation of the trade
war," said Gary Hufbauer, a senior fellow and trade expert at
the Peterson Institute for International Economics. 
    The Chinese currency has weakened nearly 4 percent since
July 2018, when U.S. authorities began collecting the first
China-specific tariffs. That has absorbed some of the impact of
tariffs on Chinese exporters.
    China's Commerce Ministry has said it would draft a list of
foreign companies, organizations and individuals that it deems
"unreliable" for harming Chinese companies.
    The list would apply to companies that flout market rules
and the spirit of contracts, block supplies to Chinese companies
for non-commercial reasons or otherwise harm the interests of
Chinese companies.             
    China could target high-profile U.S. companies such as Apple
Inc         , although that could backfire as millions of
Chinese people depend on the tech firm for their jobs.
    Goldman Sachs has estimated that banning Apple products
could slash profits of the iPhone maker by almost a third. Apple
and other U.S. firms are also vulnerable to consumer boycotts in
China. There is precedent for this: South Korean companies faced
boycotts when deployment of a U.S. anti-missile system angered
China's government.
    Beijing could make life difficult for American banks,
restaurant chains such as Starbucks         , courier companies
such as Fedex         and commodity suppliers by opening tax
inquiries, withholding licenses and other similar bureaucratic
    Big U.S. businesses, however, have been among those pushing
for a more moderate stance in Washington, so it would not help
Beijing's case to alienate them. Many American brands in China
have joint ventures with Chinese partners, and these would also
be hurt by government pressure.
    Both sides have already slowed visa approvals for academics;
authorities could do the same for executives and government

    Beijing could reduce cooperation with the United States on
thorny international issues, such as North Korea and Iran. It
could also step up military gestures in the South China Sea and
around Taiwan, an unofficial U.S. ally. 

    The United States could increase tariffs on Chinese imports.
Authority for that rests with Trump, who has described himself
as tariff-man.
    Trump's administration is preparing tariffs on Chinese
imports that have so far been spared. 
    Beyond that, one option would be to raise levies further on
$50 billion worth of Chinese technology goods, including
machinery, semiconductors, autos aircraft parts and intermediate
electronic components on which tariffs were imposed last July
and August. The products, taxed at a 25% rate, were selected to
avoid hitting U.S. consumers and to hamper China's technology
    The United States could sanction additional Chinese
companies flagged for a host of issues, from alleged
intellectual property theft to sanctions violations or human
rights concerns.
    One option would be placing more companies on a blacklist
that bars U.S. suppliers from selling to them without special
permits, as the Trump administration did with Huawei
Technologies last month. 
    Washington is already considering sanctions for Chinese
video surveillance firm Hikvision and equipment maker Zhejiang
Dahua Technology. They are involved in surveillance at Chinese
detention centers for ethnic Uighurs and other Muslims.  
    The downside would be hurting U.S. companies that do
business with the targeted firm.
    Administration officials could further increase pressure on
foreign governments to exclude Huawei from their 5G networks.
    The Justice Department is likely to continue to crack down
on Chinese spies and hackers for stealing technology and trade
secrets from American corporations, as part of its China
initiative to counter Chinese economic and security threats. 
    Tension has already risen as the United States undertakes
freedom of navigation operations through the Taiwan Strait and
South China Sea. China has been increasingly assertive about its
sovereignty over Taiwan, which it considers Chinese territory to
be brought under Beijing's control by force if needed.
    U.S. warships have sailed through the Taiwan Strait at least
once a month since the start of this year. The United States
restarted such missions on a regular basis last July. 
    Trump's government could impose sanctions on prominent
Chinese officials seen as complicit in human rights violations
of the Uighur population. Congress has urged Trump to impose
such sanctions.
    Washington could also deepen a crackdown on Chinese
companies that fund or supply North Korea's nuclear programs. 

 (Reporting by Alexandra Alper; Additional reporting by David
Lawder and Tony Munroe; Editing by Simon Webb, Leslie Adler and
Jonathan Oatis)
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below