The View From London: We’re In A Full-Scale China Trade War – Forbes

The Economist Intelligence Unit says we are in a full-blown trade war with China. Xie xie, Xi Jinping. Thanks, Mr. President. Photo: Yonhap News via Bloomberg.

It’s definitely not the consensus view. But The Economist Intelligence Unit said Tuesday that presidents Trump and Xi Jinping have gotten us into a full-scale trade war.

“That the U.S. is doing this at the same time as pausing trade tensions with Europe shows that the determination to confront China is strong enough to mean a trade war can be declared, but also that it will for now just be a bilateral war, not a global one,” says Simon Baptist, chief economist at the EIU, the business intel unit of The Economist magazine in London.

President Trump is promising another 25% tariff on $200 billion of Chinese imports. For their part, China has proposed retaliatory measures hitting $60 billion worth of U.S. goods, including new duties on American lumber, liquefied natural gas and computer components.

The People’s Daily of China, the official mouthpiece of the Chinese Communist Party, hinted in an op-ed today that Beijing would be wise to make it difficult for Apple to do business there. Apple has a major assembly unit in mainland China. And Chinese consumers are big fans. The government could force Apple into a corner, helping Samsung and local Chinese companies pick up market share in the process. While the Chinese Commerce Ministry has not said anything publicly about going after Apple, or other American brands, that the op-ed has appeared in the People’s Daily should be considered a warning shot.

A cargo ship leaves the Port of Oakland in Oakland, California, on July 17, 2018. The U.S. Census Bureau is scheduled to release trade balance figures on August 3. Photographer: David Paul Morris/Bloomberg

See: Trade War Casualties: Factories Leaving China — Forbes

These Are The American Industries China Will Hurt Next — Forbes

Trump Goes For China’s Jugular — Forbes

The market largely expects Trump to enact the $200 billion the first week of September.

“We have seen reports over the last week that China is reaching out and prepared to do more on opening its market. But it is all hard to predict on a day-to-day basis what’s coming down the pike,” says David Page, a senior economist for AXA Investment Management in London. “I think more tariffs are likely over the next couple of months,” he says.

Trump has threated to slap 25% tariffs on every last Made in China import. Trump has had a one-track mind on the China trade issue for more than a decade, having famously said that if he was ever the president he would “tariff the hell” out of them.  (He used a few choice words instead of the pronoun “them.”)

As the tariffs began in March starting with steel and aluminum, China retaliated with the same dollar amount. But if Trump does go with $200 billion in September, China can no longer retaliate in kind.

According to Panjiva research, a business intelligence firm owned by S&P Global, China’s $60 billion figure hits 56% of U.S. exports, including 85% of all electrical machinery and 75% of electronics. That doesn’t count the $50 billion they hit with tariffs in July.

China’s next trade war reload will hit virtually all goods imports from the U.S., but also extend into services such as reductions in student and tourist numbers and regulatory moves against U.S. firms operating in China, as hinted to in the Apple threat.

The EIU sees some winners in the next theater of war, and it’s not China and the U.S.

“In the short run some winners include Australian agriculture, Airbus and Mexican electronics ,” says Baptist, who also admits that those gains will be short-lived if the trade war dust starts to settle.

Longer term, electronics sectors in places like Taiwan, South Korea, Malaysia and Vietnam could move into parts of the supply chain currently held by China. Australia, Indonesia and Malaysia are also nearby suppliers for LNG, which is expected to be part of China’s next round of fire.

“I am not convinced we will get to a full-scale trade war, really, but the next round will impact markets and the economy,” says AXA’s Page. “I think the negotiations could provide some alleviation of those tariffs next year. China will make more concessions.”