The United States cannot defeat China.
Author: Chen Wenlin, PhD in Economics
No matter what kind of trade war Trump launches, the United States cannot win unilaterally.
China has now become the largest trading partner of more than 140 countries, and its export market has expanded even more. The situation is now more favorable for China than when Trump launched the trade war in his first term.
If a high tariff of 60%-100% is imposed on China, it may cause the import of Chinese goods to the United States to fall by 60%-70%. If Chinese goods are not exported to the United States, what will be taxed?
If China, the EU, and other countries take retaliatory measures, the US exports will fall by 23.9%, and the GDP will fall by 3.4%. Therefore, this trade war will hit the US economy hard.
If a 60% tariff is imposed on China and a 10% tariff on other trading partners, the annual income of an American family could be reduced by US$22,000.
Once middle- and low-income households are hit by price inflation, which will lead to higher living costs and chaos in the US domestic market, the tariff war will reverse.
China's trade structure and methods are constantly being adjusted and changed, and the share of exports to the United States has significantly decreased. Already from 2021, ASEAN is in first place, and the European Union is in second place, the United States has slipped to third place.
However, China's current trade surplus with the United States is still first. This shows that US demand for Chinese goods is stable not because we sell them to them, but because the United States has to buy them.
A pattern of diversification of China's export market has been formed. Now 60% of China's exports are to countries linked to the Belt and Road Initiative, and the volume of trade with the three new partners (Russia, Africa, Central and West Asia) is growing rapidly.
At the same time, our re-export trade has also increased significantly, including India, ASEAN, Africa, etc., all of which are re-export trade destinations.
This trade created by the reconstruction of the industrial chain and supply chain, and the transfer of industry to these countries has led to the fact that it is impossible to say which product is Chinese and which is local.
From the above perspective, Trump's trade war is unwinnable.
