Trump: Beijing “Will Be Hurt Very Badly” If They Retaliate With More Tariffs

As Washington and the investing public wait to learn more about Beijing’s plans for retaliation following the latest round of trade-war escalation, Trump tweeted on Monday that Beijing would retaliate at its own risk: If it follows through with another round of retaliatory tariffs, Trump warned, there would “nobody left in China to do business with.”

If the situation isn’t resolved, “China will be hurt very badly” because President Xi decided to back out of his “great deal.”

Since Liu He left Washington on Friday without a deal, or even a plan for the next round of talks, political analysts over the weekend have focused on what form retaliation from Beijing might take.

China

Beijing’s options are limited by the fact that it simply doesn’t have as many imports to tax, which has led to vague threats like this one, tweeted by Global Times editor Hu Xijin, saying only that Beijing’s plan will have “precise effects,” harming the US while “minimizing damage” to the Chinese economy.

The Global Times published a piece over the weekend calling on Beijing to “direct precision strikes at vital links in the US economy to inflict systemic damage to bring the latter back to the negotiating table.”

One former Chinese commerce official quoted in the GT story said Beijing’s countermeasures should show that “China is not only resilient against the higher tariff but is capable of hitting back.” This might help the US “abandon its misconceptions,” he said.

Over the weekend, state TV contended that the fallout from the trade war would be “totally controllable” and that “China will never surrender to external pressure,” Reuters said.

Another analyst from the World Economics and Politics with the Chinese Academy of Social Sciences pointed out that most of the costs from higher tariffs imposed by the Trump administration would be borne by US consumers.

Gao Lingwen, a senior research fellow at the Institute of World Economics and Politics with the Chinese Academy of Social Sciences, (CASS) said most of the extra costs brought about by the Trump administration’s heightened tariffs will be borne by US consumers.

“Chinese exporters have had to shoulder about 10 percent of the tariff burden imposed by the Trump administration so far. The remaining 90 percent is eventually passed on to US retailers and consumers,” Gao said at the same seminar.

Instead of focusing on broad-based tariffs, Gao said Beijing could focus its tariffs to pummel carefully selected industries (though none were named in the piece).

One key source of the confidence some in the US feel about the ease of winning a trade war is the sound performance of the US economy so far. However, Gao said that as the tariff pain is gradually passed on to US products and consumers, such confidence will come to an end.

“China does not need to match the Trump administration’s tariff war in terms of scale and tariff percentages. Instead, China could shift its focus from hitting Trump’s voter base to pummel a carefully selected industrial chain linkage point that could cause systemic risks to the US economy,” Gao said.

Following Friday’s meetings, Liu outlined three demands on the Chinese side: The removal of all trade-war tariffs, set targets for Chinese purchases that are in line with genuine demand, and ensure that the text of the deal is “balanced.”

Washington has already started the process of raising tariffs on all remaining Chinese goods. With all Chinese goods soon expected to face 25% tariffs, most expect this could have a serious impact on China’s economy.

Still, President Trump has assured the public that the US is “right where we want to be” on China.

Given the strength of the market’s YTD rally and the GDP numbers from the first quarter, Trump might have a point: even the GT conceded that making a deal would be in China’s best interest.

Rabobank

Many experts have insisted that China can take the pain from a trade deal longer than Trump, largely by virtue of its authoritarian system. But is it possible that Trump was on to something when he warned that there would be “nobody left in China to do business with” if Beijing doesn’t find a way to end the trade war?