Olivier and Mann – Observers said that China will not likely sit back and allow Trump to take control of any trade directives that affect China’s interests and will use other means such as trade rules to financial power to fight back.
In his CNBC interview, Cornell University economist Eswar Prasad said that any actions, including minor ones that Trump takes, could develop into a trade war.
Believing that the U.S. needs to rebalance what he sees as unfair is very important for Trump so he can put his stamp on the new administration. A verbal fray with China already erupted, even before Trump has set foot in the Whitehouse.
The choice of an ardent critic of China’s trade practices, Robert Lighthizer, as chief trade negotiator has also caught the attention of Beijing.
China’s foreign ministry has said on many occasion that China-U.S. economic cooperation is essentially about achieving win-win results for both sides.
Adding that after years of both China and the U.S. working closely on areas of common interest mutual respect and equality in economic relations should continue. Both countries should work together to sustain positive development and joint economic ties as that is what will serve the common interests of both countries.
What could China do if the diplomatic route doesn’t work out?
Prasad said that since China has the second largest hoard of U.S. Treasuries outside of the U.S., recently being overtaken by Japan, the Asian country has leverage over the U.S. but China would rather not use its stockpile against America as China has few other options for areas to put its money. The most effective action for China would be to restrict the access of American businesses to the huge Chinese market which is still fast growing.
Adding that China could also affect the supply chains that American manufacturers have been relying on of which China is a critical part. By doing so, China can inflict damage on U.S. businesses and on the U.S. economy too. Therefore Trump’s tirade against China could potentially backfire on him and the U.S. economy.