If the US wants to have a trade war with China, Beijing could decide to sell US Treasury bonds that would be a major hit on America’s financial situation, says Victor Gao of the China International Studies Association.
US President Donald Trump on Thursday announced new tariffs for steel and aluminum imported to the US. He said that the move comes in response to the aggressive behavior of exporters. The new levies will take effect on March 23. Foreign companies will have to pay a 25 percent tax for steel and 10 percent for aluminum sold on the US market.
Mexico, Canada and Australia have been granted an exemption.
In response to the move, the EU said that it could impose tariffs on jeans, motorbikes, peanut butter and orange juice originating from the US.
Chinese Commerce Minister Zhong Shan said that “there are no winners in a trade war” on Sunday, warning that a trade war between the US and China will leave the global economy in ruins.
Eyes On Events: What do you make of these tariff moves by Trump?
Victor Gao: I think the tariffs to be imposed by the US on these exporters of steel and aluminum products to the US are the wrong sanctions and are the wrong thing for the US to do. It is very counterproductive. It will arouse retaliation by the countries about upon which these tariffs will be imposed. China will also react to these trade protectionist measures by the US. And we urge the US government to do the right thing to protect free trade and to avoid using these trade protectionist measures against trading partners in the world.
Eyes On Events: What sort of retaliation would you expect from China?
VG: It really depends on what the US will do. China has been working with the US in the recent months. There have been two members of the politburo traveling to Washington to meet with their counterparts in the US. China urges the US to deal with each other with equality rather than resort to these trade protectionist measures. However, if the US wants to have a trade war with China, China will need to stand firm on principle and retaliate against the US.
There are many things China can do, including, for example, soybean and cotton and many agricultural products, but also imported cars from the US. And I think, as the last resort, China can decide to sell Treasury bonds of the US. And that would really be a major hit on the financial situation in the US.
Trade wars will really create lose-lose situation. Neither China, nor the US will come out of that as winners. Both will be losers and the world trade will suffer as a consequence. So, the US should do the right thing rather than resort to trade war.
Eyes On Events: Is this just a clever ploy by President Trump to get people around his table to talk about any sort of new deal?
VG: I think it is smart on the penny, but very stupid on the pound. The US as the largest economy in the world should avoid these trade protectionist measures and should be a champion of free trade and globalization. And if it decides to completely disregard free trade measures and trample on free trade principles, be our guest. Because the rest of the world will see through the true nature of the US and how they are distorting global trade by using these protectionist measures and single-handedly using trade tariffs to punish other countries which are engaged in normal trade with the US. And once a trade war starts, it is difficult to get over with it and the feeling hurt will probably last for many years to come. And the US eventually will suffer more than winning anything out of that.