As expected, Beijing is looking at a series of measures to protest the Trump administration’s decision on August 18 to launch a Section 301 investigation into intellectual property (IP) violations and trade practices in China. Section 301 of the Trade Act of 1974 gives the president free rein to impose tariffs on imported goods to defend the economy against heavily subsidized foreign companies.
According to a recent article published by the China People’s Daily, Beijing could impose limits upon U.S. imports, cut down exports to the U.S. as well as offload dollar assets.
As the paper points out, the People’s Republic of China (PRC) is America’s second-largest export market. Rough figures show that the U.S. exports 62 percent of its soybean, 14 percent of its cotton, a quarter of the aircraft produced by Boeing and 17 percent of light vehicles to the East Asian nation.
The People’s Daily also notes that the U.S. is China’s number-one export market and that the American public would have to pay more for their goods if Chinese imports were restricted. The US-China Business Council (USCBC) calculated that American households saved an average of $805 in 2015 thanks to cheap Chinese imports.
However, limiting imports and exports of products would not be Beijing’s most damaging move. Indeed, the paper also reports that Beijing could disrupt U.S. financial stability if it were to offload its dollar-denominated assets on a massive scale.
China purchases a large amount of dollars – which are then invested into U.S. Treasuries – to keep its currency undervalued. A lower demand for U.S. bonds would lead to a rise in interest rates.
Three days after Trade Representative Robert Lighthizer officially launched the Section 301 investigation, the Chinese Ministry of Commerce (MOC) issued a statement expressing its “strong dissatisfaction” with the Trump administration’s decision and emphasizing that it sent “a wrong signal.”
“China will pay close attention to the investigation and will take all appropriate measures to resolutely safeguard the legitimate rights and interests of the Chinese side,” the statement also added.
US think tank The Brookings Institution pointed out that China had always retaliated in such circumstances. It also predicted that the countermeasures would be “proportionate.”
Imports from China totaled $463 billion last year while U.S. exports to the East Asian nation were only $116 billion over the same period. Although it may seem like China will be the biggest loser if it goes ahead with its planned countermeasures, Wang Wen, the executive dean of Renmin University’s Chongyang Institute for Financial Studies, believes that the U.S. economy will be worse affected in the long run because it is less resilient than the Chinese economy.Share