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Trade wars: Easy to win?

Summary:
The trade war between the US (or rather the Trump Administration) and China (or rather Xi Jinping) is heating up again. The standard view seems to be that, because of the massive imbalance in merchandise trade between the two countries, Trump has the advantage. China could retaliate by dumping US bonds, but this is seen as a weapon too dangerous to use. I don’t think this exhausts the options. As we’ve seen in Australia, the Chinese government can do all sorts of things to retaliate against nationals of a country that has offended them. That might, however, be an option confined to bit players like Australia. If I were advising Xi on retaliation against Trump, I’d suggest looking at services where the balance is strongly in favor of the US. An obvious starting point would

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The trade war between the US (or rather the Trump Administration) and China (or rather Xi Jinping) is heating up again. The standard view seems to be that, because of the massive imbalance in merchandise trade between the two countries, Trump has the advantage. China could retaliate by dumping US bonds, but this is seen as a weapon too dangerous to use.

I don’t think this exhausts the options. As we’ve seen in Australia, the Chinese government can do all sorts of things to retaliate against nationals of a country that has offended them. That might, however, be an option confined to bit players like Australia.

If I were advising Xi on retaliation against Trump, I’d suggest looking at services where the balance is strongly in favor of the US. An obvious starting point would be tourism. A travel advisory, suggesting that the US is a dangerous place for Chinese tourists to visit, and implying that such visitors might face adverse consequences on their return would be an obvious choice. It would cause instant economic pain, be easily reversible and could be justified by pointing to the example of the US embargo on Cuba.

A more hopeful, and probably more likely, outcome is that China will play for time until 2020, when Trump will come under pressure in US farm states, or until 2021 when (more likely than not) he will be gone altogether.

Trade wars aren’t, as Trump suggests, easy to win. But they are nowhere near as destructive as real wars. We should be more concerned about the hawks in the foreign policy establishment, spoiling for a fight over the South China Sea, than about tariffs on TVs and soybeans.

John Quiggin
He is an Australian economist, a Professor and an Australian Research Council Laureate Fellow at the University of Queensland, and a former member of the Board of the Climate Change Authority of the Australian Government.

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