What if Donald Trump were to slap an import tax on Chinese products out of spite? What would be at stake for China? Would it spell a drastic downturn of growth or lead to social unrest?
The amazing answer would be none of the above. China has shifted from being the factory for the world to being the factory for China. Of all the goods produced in China, 90 percent are bought by the Chinese themselves, 10 percent are exported and of that, only 18 percent goes to the United States.
If Trump placed a 30 percent import duty on all of these exports and Beijing completely absorbed this, in a worse case scenario that would never happen, it would only cost 0.2 percent of China’s growth. It would be easy for China to compensate for this, somewhere in the hinterlands without much effort at all.
It would chiefly just mean a political loss of face for China though for that reason alone, Beijing wouldn't take it.
Even former U.S. President Barack Obama was once caught off guard by Beijing. When U.S. import duties were imposed on Chinese rubber tires, the Chinese hit back with duties on American chicken feet. That was a dirty trick because no one likes to nibble on chicken feet like the Chinese and the damage is currently more than $1 billion.
If Mr. Trump plays hardball, he could be in for an even bigger surprise. While China can also buy cars and aircraft in Europe and chicken feet and soy beans in Brazil and Argentina, Americans can't buy computers, smartphones or TVs anywhere outside of China. They also won’t manage to just make them locally.
Moreover, Beijing could come up with other mean nasty things yet. If China’s domestic consumption is to keep growing in the double digits, Beijing might possibly have to – without any malicious intent – introduce waiting times for exporting goods because it can't produce goods fast enough for local demand.
One thing is clear at any rate, even if Mr. Trump were a lamb, Beijing can no longer afford to allow even one Chinese consumer to be left waiting while an American is supplied. The Chinese can still remember that up until 2014, Apple treated them as second-class customers, making them wait up to three months when iPhones 4, 5 and 6 were introduced.
Now, as iPhone market shares are falling, customers in New York and San Francisco might have to wait because Beijing decides that the Chinese come first in getting smartphones “Made in China.” Leader Xi Jinping could say that doesn't violate any World Trade Organization rules and it serves social stability. China first. That’s something you can certainly appreciate, Mr. President.
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