How Can China Retaliate Against The US For Its Protectionist Action?

The US has imposed a 25 per cent tariff on $50 billion of Chinese goods with the objective of decreasing the US-China trade deficit from $370 billion currently to $200 billion by 2020. In retaliation, China has imposed a 25 per cent tariff on $50 billion of US goods. In response, the US is studying the option of imposing a 10 per cent tariff on another $200 billion of Chinese goods. One will learn from international trade that a trade war will lead to a lose-lose situation. You can take economics tuition from a good economics tutor to learn that no country will emerge victorious in a trade war. That said, China will almost certainly retaliate if the US imposes a 10 per cent tariff on another $200 billion of Chinese goods. The question is, how can China retaliate against the US for its protectionist action?

Increase Tariffs

One obvious retaliatory measure that China can take is to increase tariffs on another $200 billion of US goods. However, although the rationale of such a retaliatory measure is obvious, it is not feasible. This is because China imports only about $130 billion of US goods. Therefore, with an increase in tariffs on already $50 billion of US goods, China is able to increase tariffs on only about another $80 billion of US goods. There are simply not enough US goods which China can increase tariffs on to counter such a US protectionist action. One can learn the types and amounts of U.S exports to China in economics tuition conducted by an experienced economics tutor. In addition, such a retaliatory measure will lead to higher prices for consumers which will reduce the real value of savings. This is very undesirable due to the high level savings.

Procurement Policies

The Chinese government can adopt a policy of buying domestic goods and services instead of US goods and services to retaliate against the US protectionist action, even if domestic goods and services are more expensive or of lower quality than US goods and services. However, such a retaliatory measure is subject to the same limitation of limited Chinese imports from the US, which is around $130 billion. A good economics tutor will tell you that such a retaliatory measure is likely to produce a limited effect. One can find economics tuition in Singapore easily due to the large number of economics tuition centres.

Increase Regulation on US Companies

To retaliate against the US protectionist action, China can punish U.S companies in the country. This can be done by increasing regulation on the companies to hurt their profitability. For example, China can increase regulation on Apple Corporation by requiring it to meet a higher standard of performance of their devices which is not easily achievable. In economics tuition, one will learn that although such a retaliatory measure has not been used by any government before, it is not impossible.

Sell US Government Bonds

The Chinese government is the largest holder of US government bonds which currently stands at around $1.17 trillion. To retaliate against the US protectionist action, the Chinese government can sell US government bonds as a punishment to the US. Selling US government bonds will lead to a fall in the prices. When this happens, the prices of US government bonds will fall which will lead to an increase in the effective coupons. This will increase the costs of the US government’s borrowing. One can learn the inverse relationship between the prices of bonds and the effective coupons on bonds in economics tuition conducted by an economics tutor with experience in banking. Given that the US government has a high public debt-to-GDP ratio, an increase in the costs of borrowing can cause great harm to the US economy.

Jacky Liu

Click to Read Next Post


economics tuition, back to homepage

Economics Tuition Singapore @ Economics Cafe
Principal Economics Tutor: Mr. Edmund Quek