State media and scholars in China Monday snubbed U.S. President Donald Trump after he said he would resume hiked tariffs on Chinese imports if it fails to buy an additional $200 billion more of American goods and services in the next two years as pledged.
They say that such punitive measures, once re-enacted, will instead hurt the U.S. economy.
But some economists urge China to take Trump’s threat seriously because the Chinese economy — already badly hit by the COVIC-19 pandemic — will be the bigger loser, and cannot afford another tariff war with the United States. COVID-19 is the disease caused by the coronavirus.
Inevitable war?
Economist Darson Chiu warned that the re-emergence of the U.S.-China tariff war before the U.S. presidential election in November looks inevitable, given that the possibility for China to honor its purchase commitment reached in the Phase 1 trade deal is slim.
By my gauge, “(China’s) imports will have to grow 60% this year compared to 2019. This will be an impossible tall order. That means the U.S. will become China’s largest source country for imports in 2020,” said Chiu, a research fellow at the Taiwan Institute of Economic Research (TEIR).
If that happens, China will be a serious violator of the World Trade Organization’s rule of non-discrimination, which forbids any member country to discriminate between its trading partners, Chiu added.
Official statistics showed that China’s imports of U.S. goods dropped to $122.7 billion in 2019 from $155.1 billion in 2018 and $154 billion in 2017.
Weakened purchasing power
Chiu said speculation that the coronavirus pandemic has significantly damaged China’s purchasing power is not groundless after the Chinese economy shrank 6.8% in the first quarter — its first contraction since 1987.
China will have to resort to debt financing to fulfill the U.S. purchase commitment, he said.
Even if China regains its purchasing power, it does not have storage space for more than $50 billion worth of U.S. energy products in the next two years now that energy prices have dropped to new lows, he said.
Making matters worse, the U.S. last week tightened restrictions on much-coveted high-end tech exports to China.
Under such circumstances, Chiu predicted that Trump will likely reignite the tariff war as he attempts to fuel anti-China sentiment to rally support behind his reelection campaign.
New tariffs
Already, Trump is toughening up against China.
On Friday, he threatened new tariffs as retaliatory actions over the coronavirus outbreak, saying tariffs would be the "ultimate punishment."
He told a virtual town hall Sunday from the Lincoln Memorial in Washington that China must honor its Phase 1 deal.
“If they don’t buy, we will terminate the deal. Very simple,” he said.
The deal ended retaliatory tariffs on some $155 billion worth of Chinese imports, which were set to take effect at the end of 2019, and halved tariffs to 7.5% on another $120 billion in Chinese goods. The U.S. still keeps the 25% import taxes on $250 billion worth of Chinese products.
A snub
Shi Yinhong, an international relations professor at Beijing's Renmin University, told Lianhe Zaobao, the largest Singapore-based Chinese-language newspaper, that China will retaliate if the U.S. imposes any new tariffs.
That, he warned, will force the U.S. economy to slip into a bigger recession and serve as a disadvantage to Trump’s reelection bid.
A commentary on Reference News, an affiliate to state media Xinhu News, argued that the U.S. is mulling three “poisonous arrows” — tariffs, stripping China of its sovereign immunity, and cancellation of U.S. debt obligations to China so that the U.S. can sue China for coronavirus damages.
But all three arrows will only end up hurting the U.S. economy, it said.
In an editorial, state tabloid Global Times lambasted U.S. Secretary of State Mike Pompeo, calling him an anti-China bluff, and urging him to present proof when he said there was “enormous evidence” to show the coronavirus originated in a Wuhan lab.
As China is closed for a public holiday, its “wolf warrior” diplomats have not responded to Pompeo’s accusations.
Asian markets tumbled on Monday as U.S.-China tensions appeared to rise. Hong Kong’s Hang Seng benchmark dropped 4.2%, while South Korea’s Kospi slipped 2.9%.
Speaking on condition of anonymity, an economics professor at Peking University told VOA that any new tariffs will hurt Chinese exports, which may lead to a drop in China’s foreign reserves and thus limit its purchasing power.
Tensions escalate
The professor cautioned China to manage its relations with the U.S., though he doubted China will deliberately fail its purchase commitment, unless it is a political decision.
Both he and TEIR’s Chiu estimate that China is likely to halve its economic target for this year to around 3% during its “Two Sessions” later this month. The term “Two Sessions” refers to meetings of the national legislature and top political advisory body.
The professor said the export-oriented Chinese economy cannot possibly do too well, if the world economy keeps slipping and given that China is slowly recovering from the outbreak.
Chiu expects China to boost government spending, keeping its 2020 growth target at 3%, higher than most international economic institutes’ estimates, which range between 1% and 2%.