uploads/2019/06/part-2-2-1.jpg

Has President Trump Underestimated China’s Resolve?

By

Updated

President Trump

US President Donald Trump increased tariffs on $200 billion worth of Chinese goods last month after accusing China of reneging on previous commitments. Trump also imposed restrictions on Chinese giant Huawei.

China retaliated by increasing tariffs on $60 billion worth of US goods. The country’s state-owned media has also doubled down on its rhetoric by suggesting that China could restrict rare earth mineral exports to the US.

If we go by the trade data, we’ll see that China has limited weapons to use in retaliation against the US, as it doesn’t export much to the country. In a tit-for-tat tariff fight, China’s ammunition would fall short of Trump’s.

Article continues below advertisement

Tariffs

On his part, President Trump looks content to collect tariffs on Chinese imports, which he’s even said will be used to compensate US farmers who have been affected by the US-China trade war. Again, the numbers seem to be in Trump’s favor, as a 25% tariff on $250 billion worth of Chinese goods exceeds the total amount of US agricultural exports to China.

Meanwhile, China has shown no signs of backing down from the trade war, and Chinese leadership has made it an issue of national pride. Several Chinese consumers have issued calls to boycott Apple (AAPL) products in favor of homegrown brands. The country’s state-owned media has drawn parallels between the current trade spat and the Korean War.

China is also doubling down on investments in high-tech industries. CNBC reported that according to Gu Wenjun, an analyst at Chinese semiconductor research company ICWise, “The Huawei incident has indeed stimulated the development of China’s domestic chip industry.” The stocks of companies such as Qualcomm (QCOM), Broadcom (AVGO), and Intel (INTC) fell sharply after the Trump administration targeted Huawei.

Advertisement

More From Market Realist