China still has several tools in its kit to mitigate the negative effects of President Trump’s trade war on its economy. With a top-down economic structure and a huge domestic market, China may be able to absorb some impact of the latest round of tariffs by turning goods destined for export around for internal consumption.
While pushing back on U.S. demands, China continues expanding to new markets. President Xi’s “One Belt and One Road” initiative to build infrastructure projects from Europe to Africa has already provided a big market and consistent demand for Chinese exports, especially those running into overcapacity issues, such as steel and cement. Many countries along the initiative routes are resource-rich. They will provide a steady supply of raw material and energy to support China’s long-term economic growth.
China can also increase its investment in Africa. In early September, Xi announced a $60 billion package of aid, investment, and loan money for Africa. Since Africa is already becoming overloaded with Chinese debt, the majority of this aid package is expected to be investments that will provide an outlet for Chinese goods and services.
Beijing has also started a charm offensive with U.S. businesses. Xi’s top economic advisor recently promised a delegation of U.S. multinationals that U.S. businesses operating in China “won’t be targeted in Beijing’s trade counterattacks.” China’s government-run tabloid, the Global Times, tried to appeal to U.S. businesses by stating, “The Chinese market can help them make money, but the White House can’t.”
Most importantly, Xi became president for life in March of this year. Time is on his side. He doesn’t face much political pressure to reach a trade deal with the United States. As a matter of fact, China’s hardliners may grumble if they perceive any trade deal has sold out China’s interests. So Xi has strong incentives to act like the tough guy who won’t yield to U.S. demands. This probably explains why China already warned the United States that it would back out of the latest round of trade talks if Trump goes ahead with his latest tariff announcement. (Read more from “China Still Has Plenty of Ammunition to Fight Back in Trump’s Trade War” HERE)