interest.co.nz - China and the US
China has many cards up its sleeve with which to counter US trade moves
By Siah Hwee Ang
China and the US are unlikely to resolve their differences anytime soon.
This triggers uncertainty around what is to come in the world economy in the coming years.
Despite the seemingly perennial US role as leader in world affairs, China is the largest trading partner to a lot more economies across the globe.
And while all eyes are on the China-US duel in trade retaliation shots, the US does take a similar stance towards other countries.
Your enemy’s enemy can become your friend.
The differences between the US and Europe have prompted Europe to stand alongside China and update trade rules around technology policies and subsidies, amidst their very own bilateral disputes.
This coming together will also lead to discussion on a treaty to iron out differences on the investment front.
China’s (potential) loss in its standoff with the US is always going to mean some hedging of their own vulnerable positions in particular industries.
Soybeans, in particular, have been a major weapon for the Chinese.
In 2017, China imported 95 million tons of soybeans from the US (worth around US$14 billion), which constituted 34% of its total imports.
This figure is 31 % of US total soybeans exports. The US is the second largest exporter of soybeans behind Brazil.
China imposing a 25% tariff on US soybean imports puts a serious dent on US soybean exports.
And while US farmers will have to find another market for their exports, China will also need to source its soybeans from elsewhere to plug the gap.
China has come up with a quick response.
Effective from this week, China will revoke the current 3% tariffs on imported soybeans from five Asian countries, namely India, South Korea, Bangladesh, Laos and Sri Lanka.
The small reduction in tariff and the size of the exports from these nations will not come close to filling the gap.
The significance is that China is using opportunities such as this one as a way to diversify from its trade dependencies with the US.
In the meantime, it is also increasing its own production of soybeans.
This diversification also opens doors for Brazil, Argentina and Paraguay from Latin America, and Canada as large exporters of soybeans.
A total of 8,549 types of goods originating from the five Asian countries above will also see tariffs reduced or cut to zero in areas such as chemicals, agricultural and medical products, clothing, steel, and aluminium products.
This is done under the umbrella of the Asia Pacific Trade Agreement (APTA) of which the six countries are members.
The APTA was formed in 1975 and is the oldest preferential trade agreement among economies in the Asia-Pacific region. It was known as the Bangkok Agreement before 2005.
Balancing trade challenges, China revised its ‘negative list’ on investment last week.
Taking effect from July 28, China is opening up further for investment in areas such as infrastructure, railway passenger transportation, international shipping, grain purchases and wholesales.
The relaxation of restrictions will see the phasing out of the 50% equity cap for foreign aircraft and car manufacturing in joint venture arrangements.
Bilateral relationships between economies are multifaceted.
From the adjustments that it is making in response to its jostle with the US, it is evident that China has many cards up its sleeve thanks to its strength in trade and its investment potential.
Above all, this allows China to play a larger role in Asian economics and ensures its centrality in business in Asia.