China's announcement of a record trade surplus with the US just before Donald Trump's inauguration has heightened tensions and fueled concerns about a potential trade war. Trump has vowed to impose significant tariffs on Chinese goods, further escalating the existing trade dispute. The massive surplus, driven by China's focus on advanced technology exports and weak domestic demand, has made the country more vulnerable to a trade war than in the past. China is now facing pressure to boost domestic consumption and find ways to mitigate the impact of potential tariffs.
China’s announcement of a record trade surplus on Monday, a week ahead of Donald Trump’s inauguration, is inadvertently, but unavoidably, provocative.to impose tariffs of up to 60 per cent on China’s exports to the US on day one of his second term as president, the $US992.2 billion surplus will be like a red rag to a bull.
China’s over-reliance on exports for growth has made it more vulnerable to a new and more punitive trade war than the last tariffs Trump imposed in his first term, even if Beijing is better prepared for a new outbreak of trade hostilities today than it was then.The threat of what Trump and his hawkish cabinet might do has forced Xi to do what he had previously resisted and take steps to boost domestic consumption.
The prospect of China falling into a deflationary trap – the “Japanification” of its economy – has led to calls from economists outside China to do a lot more to boost consumption. That may well happen at the National People’s Congress in March, where the country’s most senior leaders will set out their economic objectives and strategies for this year.
China would look to increase its citizens’ income, increase subsidies for consumers and improve social security, he said. The most obvious and least wasteful measures that might lift consumption would be to target low-income households by expanding and strengthening the social security system. The impact of that trade war, if Trump follows through with his threat, could be even worse if China responds by diverting its exports to other countries.
If the US does build the promised wall against Chinese imports and China redirects its increased surplus industrial capacity to other markets, it is almost inevitable that those economies will move to protect their domestic industries and jobs, exacerbating the impact of the trade war on China.
TRADE WAR CHINA US TARIFFS ECONOMICS DOMESTIC DEMAND
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