xi jinping Lintao Zhang/Getty Images

MAD About Sino-American Trade

If China responds to Donald Trump's latest trade tariffs by withholding intermediate goods from US producers, as some Chinese are suggesting, the disruption to the US economy would be severe. But the damage to China’s economy would be even worse.

CLAREMONT, CALIFORNIA – Now that US President Donald Trump has imposed a 10% tariff on yet another $200 billion worth of Chinese imports, the US-China trade war has entered a costly new phase. As China follows through on its pledge to retaliate, the casualties will include more than half the bilateral trade between the two countries, with China itself suffering the most losses.

Whereas China exported $506 billion worth of merchandise to the United States in 2017, it imported just $130 billion of American goods. That means that, in a dollar-for-dollar slugging match, China will quickly run out of steam. Lacking powerful counterpunches, China now has some of its most creative political minds searching for novel means of retaliation.

One idea, in particular, has attracted a lot of attention in the press, mostly because it comes from Lou Jiwei, a former minister of finance who now heads the National Council for Social Security Fund, China’s national pension fund. In a defiant speech delivered at the high-profile China Development Forum on September 16, he proposed withholding exports of goods that American companies need, thereby severely disrupting US supply chains for 3-5 years, at least. Such a maneuver, Lou mused aloud, would be economically painful enough to influence US elections.

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