It would not be an exaggeration to say that the World Trade War began in January 2018. The main parties to the conflict are the United States and China. What measures can China take in response to the attacks of America.
The fighting is already on the ground (raising tariffs) and in the air (devaluing the currency).
Of course, one can recall the various harsh statements made by D. Trump both during the presidential election and after the inauguration that the principles of trade with China are unfair, about the need to withdraw from the NAFTA agreements.
However, then it looked like an element of political rhetoric, a kind of verbal pressure on partners, and few believed that soon it would come to the practical implementation of D. Trump's high-profile statements.
"America comes first" has become a new principle of US trade policy. The first step is the introduction of duties on the import of washing machines and solar panels into the country, and the duty on washing machines is set to 50%.
The next – probably the main – blow to the United States on its own currency. For the first time in many years, Treasury Secretary Stephen Mnuchin, having flown to Davos, bluntly stated that a weak dollar is in the interests of the United States.
Up to this point (let’s omit it in 1985), no matter what happens in the US economy, the Treasury secretaries have always said: in the interests of America – a strong dollar.
I must say that from the very first days of D. Trump in the White House there was talk of a too strong dollar, but until the last moment the Treasury had one answer – it is in our interests.
In the financial market the whole of 2017 they sold the dollar, sold quietly, without haste, the dollar index lost about 10%.
You can understand the financiers: they well remembered what happens to the dollar if the US speaks of the need to weaken it.
After agreements at the Plaza Hotel in 1985, the dollar lost almost 50% of the mark and the yen in two years.
A drop in the dollar is already having an effect.
A very good example is South Korea. The national currency won in 2017 strengthened against the dollar by 20% by the end of the year. This began to affect economic indicators: GDP in the IV quarter fell by 0.2%, and exports fell by 5.4% – the maximum drop in 33 years!
Other countries are doing well so far, Chinese GDP grew by 6.9% in 2017, but we will wait for data for the first quarter of this year.
The main weapon of the USA in the trade war is the dollar and duties
And what can the main opponents oppose, are they the main trading partners, say, China?
The volume of trade between the United States and China in 2016 amounted to $ 648 billion. In 2017, there will be more. Chinese exports to the US last year grew by 7%.
The deficit in trade with China among the Americans will be more than $ 300 billion.
The figures are large-scale, there is something to fight for.
The Chinese can appeal to the World Trade Organization, you can limit the import of American meat and cars, you can limit the departure of Chinese tourists to the United States: Chinese tourists spend $ 260 billion a year, and the United States is one of the most popular destinations
But the most important "secret" Chinese weapon is possible actions in the financial market. At the beginning of the year, rumors spread around someone’s easy market that the People’s Bank of China would refuse to purchase US government bonds (treasuries) and even begin to reduce its portfolio in treasuries.
Even though this information was not officially confirmed, the dollar began to decline actively against major currencies and the renminbi: since the beginning of the year, the renminbi has appreciated by 2%.
According to the US Treasury, last November, the Chinese owned treasuries in the amount of $ 1 trillion 176 billion.
Indeed, from October to November, they reduced the amount of US bonds in the amount of $ 13 billion on the balance sheet, but in the year they increased by $ 127 billion!
Can the Chinese, having started dumping the treasury, somehow harm the United States?
It should be understood that the majority of government bonds are held by American residents – $ 13 trillion 600 billion, another about $ 1 trillion is held by American companies in various offshore companies. As you can see, the share of Chinese in the total mass is not very large.
By the way, there was already an example when China was actively selling treasuries: in August 2015, they dropped US bonds at $ 185 billion – and so what? This had no effect on the American economy.
Let's say the Chinese authorities decide to get away from the dollar and the Treasury. What could happen then?
They will strike on their own: if they stop buying dollars on the open market, the renminbi will rise sharply, which will hit Chinese exports and the economy as a whole.
Yes, when dumping American bonds, the yield can sharply increase, which will negatively affect the US credit market (an increase in the yield of the underlying asset will lead to an increase in the yield on various loan products, and this will hit the consumer). But attractive returns will create additional demand for treasuries from global corporations that will easily buy back the Chinese stake.
As you can see, even the Chinese have few opportunities to wage some kind of large-scale war in this field. Most likely, the Chinese authorities will continue to support the dollar in the domestic market, buy it, try to somehow diversify their dollars (it is possible to create an investment fund, investments in raw materials, an increase in the share of gold, etc. are possible)
But most importantly, it is to develop its own economy, domestic demand, in order to eventually eliminate imbalances in world trade.