Weapons of trade war: what might China have up its sleeve?

Although Trump has brushed off warnings, Beijing has weapons beside tariffs to cause damage in a fight

BEIJING: The first shots have been fired in a trade war between China and the United States that experts say could be damaging for the world economy. The two superpowers imposed on Friday tit-for-tat tariffs on billions of dollars of cross-border trade.

While US President Donald Trump has brushed off warnings that trade frictions with powerful partners like China could harm the US, Beijing has other weapons in its arsenal beside tariffs to cause damage in a fight.

Tom Cruise films, Starbucks coffee, the iPhone X and the Buick are all best-sellers in China and authorities could find all sorts of ways to make life difficult for them, says Louis Kuijs, Asia analyst at Oxford Economics.

China "has less ammunition left in terms of imposing tariffs but history shows that there are various other measures it could take to inflict pain on US companies," said Kuijs.

He cited "scaled-up health, safety and tax checks, delaying the import of goods and boycotts of US goods."

Chinese port officials have already started upping inspections of American pork and cars, causing severe delays.



General Motors now sells more cars in China than it does in the US - and many other iconic American brands now derive a large proportion of revenue from the fast-growing Chinese market.

China could either tie up these firms in red tape or encourage an effective boycott by Chinese consumers, experts said.

Mark Williams, chief Asia economist at Capital Economics, said Beijing could arrange a "propaganda campaign, which allows officials to remain at arm's length from the resulting disruption to sales."

"In the past, these have proved both effective and fast," said Williams, noting that similar campaigns against South Korea and Japan at times of political tension "led to 50-percent falls in car sales by those countries' firms in a single month."

Last year, Chinese consumers suddenly turned against South Korean retailer Lotte, which was forced to shut three-quarters of its shops in China after providing Seoul with land to deploy an American anti-missile shield that Beijing opposes.

China may start limiting the number of big-spending tourists and its 350,000 students that head to the US each year, which would have a big impact on the American market.



"Chinese spending on travel and education in the US is similar in size to its spending on US soybeans and aircraft - the two largest goods purchases," said Williams.

China has previously limited tour groups to pressure Taiwan and South Korea, noted the expert.

However, he added, "China may feel that US universities have limited leverage over the Trump administration and limiting student numbers could undermine efforts to upgrade China's technical and scientific capabilities."

Boeing sells a quarter of its planes in China, the second-biggest market in the world, and the US aerospace giant is neck-and-neck with European rival Airbus.

This could be another pressure point, as most Chinese airlines are under state control with their orders strictly piloted by Beijing.

Even though orders are planned for the next five years, nationalistic state-run tabloid Global Times has already sounded a warning, saying Beijing could "adjust the sales volumes."



With its enormous currency reserves, China holds some $1.2 trillion in US treasury bonds and officials have reportedly started to slow or halt their purchases.

While some see this as a powerful bargaining chip with Washington, it is a double-edged sword for Beijing as dumping the bonds would cause self-inflicted losses.

Another weapon at Beijing's disposal is the yuan, tightly controlled by the central bank, which it could depreciate to bolster exporters.

But again, this could be a self-inflicted wound since it might provoke sizable capital outflows out of China.

Julian Evans-Pritchard from Capital Economics said, "While a weaker currency could offset some of the economic damage done by US tariffs, the wider risks to financial stability would not be worth taking."

If economic weapons don't work, Beijing could turn to politics. Trump relies heavily on Chinese cooperation to rein in the nuclear ambitions of North Korea's Kim Jong Un - especially in terms of maintaining sanctions.

Trump may suddenly find China less accommodating on this explosive dossier if the trade war expands.