US-China Trade War
Context:
Amid rising tensions with the US, China is showcasing its readiness for a potential trade war, leveraging a range of strategic tools in response to restrictions imposed by the Biden administration.
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- The latest US curbs, aimed at limiting China’s access to components essential for AI chips, prompted swift retaliation from Beijing, offering a glimpse of its countermeasures.
Targeted Retaliation
- In recent weeks, China has launched an anti-trust investigation into Nvidia, a global leader in AI hardware, and imposed export bans on several rare materials with military applications.
- Additionally, Beijing has restricted the sale of key components for drones to the US and Europe.
- These moves, part of an extended export control regime, appear designed to exert pressure without severely disrupting China’s economy or bilateral relations.
- Analysts suggest these actions are calculated bargaining tools for future negotiations rather than immediate escalatory measures.
Trade War
A trade war is an economic conflict that occurs when countries impose tariffs or other trade barriers against each other in retaliation for perceived unfair trading practices, often as a means to protect domestic industries. This cycle of escalating trade restrictions can lead to higher consumer prices, reduced choices, and significant economic disruption. Trade wars are typically fueled by factors such as trade deficits, allegations of unfair practices, and political pressure. A prominent example is the ongoing trade conflict between the United States and China, which began in 2018 when the U.S. imposed tariffs on Chinese goods, prompting retaliatory measures from China. While intended to safeguard national interests, trade wars often result in adverse effects on both economies involved and can hinder global economic growth.
Strategic Calibration
- Christopher Beddor, deputy China research director at Gavekal Dragonomics, noted that China’s actions serve as “bargaining chips” rather than outright provocations.
- For instance, the metals targeted in the latest bans had already seen reduced exports to the US due to earlier restrictions, and domestic efforts are underway to secure alternative chip supplies.
- This measured response aims to assert leverage while avoiding significant economic blowback.
Economic Policy Adjustments
- Alongside these moves, China’s Politburo has signaled plans for bold economic support measures in 2025, including a potential easing of monetary policy.
- While details remain scarce, further announcements are expected at an upcoming annual economic summit in Beijing.
- Speculation also surrounds a possible devaluation of the yuan to counter the impact of tariffs.
- A weaker yuan, potentially allowed to depreciate to 7.5 per US dollar, could make Chinese exports more competitive, helping offset trade tensions.
