A report published by Bloomberg said that tensions between China and the United States are increasing with the escalation of the possibilities of a new trade confrontation following the election of Donald Trump as President of the United States.
With Trump threatening to impose tariffs of up to 60% on Chinese goods, China has begun studying a set of tools it can resort to in response, despite the potential economic risks it may face.
An arsenal of economic tools
According to Bloomberg, China has several economic options that can be used in the trade dispute, but it faces major challenges due to its huge trade surplus with the United States, which makes traditional measures such as imposing mutual tariffs less effective.
1- Selling US Treasury bonds
One of the most destructive options that China may resort to is selling a large portion of its stock of US Treasury bonds, estimated at $734 billion according to the agency, which could lead to higher interest rates on US bonds, causing turmoil in global financial markets.
However, this option carries significant risks for China as well, as the value of its remaining bonds may fall, leading to significant losses in its foreign exchange reserves.
2- Decrease the value of the yuan
China could devalue its currency to make its exports more competitive. During the first trade dispute between the two countries in 2018 and 2019, the yuan depreciated by 11.5% against the dollar, which helped offset two-thirds of the impact of the tariffs.
But this option could increase China’s trade surplus, angering its trading partners and leading to the imposition of new tariffs, according to Bloomberg.
3- Restrictions on the export of vital minerals
In recent years, China has imposed export restrictions on vital metals such as gallium and germanium, used in the semiconductor, telecommunications and electric vehicle industries.
Bloomberg notes that these restrictions may extend to other minerals such as rare earth elements, disrupting the global supply chain for advanced technologies.
Despite their short-term impact on the United States, these restrictions may push other countries to search for alternative sources, accelerating the process of diversification away from dependence on China.
4- Targeting American companies
China has adopted new laws such as the “Unreliable Entity List” and the “Anti-Foreign Sanctions Law” to target companies or individuals it deems harmful to its development.
Major companies such as Apple, Tesla, and Microsoft may face problems in the Chinese market, where they generate billions of dollars in revenue annually.
However, escalation could lead to a US reaction against Chinese companies, exacerbating the economic conflict between the two countries.
5- Building alliances
China is also seeking to strengthen its relations with traditional US allies such as Japan, India and Australia. According to the Bloomberg report, China could work to convince these countries that US policies are reckless and harmful to world peace.
Despite this effort, countries may hesitate to take sides, preferring to take advantage of the competition between the two powers.
The Bloomberg report indicates that the options available to China carry great risks to its economy, but they reflect its willingness to confront American threats by unconventional means.
