China emerges as powerful player against US

In a recent article, Bloomberg highlights that as the trade war between the US and China intensifies, it's becoming clear that the balance of power isn't as one-sided as many might have thought. 

While the US has long held the belief that its massive trade deficit gives it the upper hand, China's strategic responses are proving that leverage in this economic battle takes many forms—some of which are already shaping the outcome. From targeted tariffs to subtle satirical jabs, China's influence in this conflict is growing, and it’s forcing the US to rethink its approach.

Conventional wisdom suggests that countries like the US, with large trade deficits, hold more power in a trade war compared to surplus nations, whose exports fuel these imbalances. The logic is simple: if a country has a significant deficit, cutting back on purchases from its trading partner will hurt the partner's economy more than its own.

However, this theory is being challenged by experts like Nouriel Roubini, CEO of Roubini Macro Associates. Roubini explains that China, in particular, holds considerable leverage. “You can go after Tesla. You can go after Apple. You can go after hundreds of dollars of US economic interests and FDI in China,” he stated on Bloomberg Television.

The issue becomes more complex when the US relies heavily on products made in China, with many of these goods being produced by US companies. Halting purchases from China can backfire, harming the US economy in the process.

The intricacies of this interdependence were evident over the weekend when the Trump administration decided to exempt smartphones, laptops, and TVs from new tariffs. Apple and other companies, dependent on Chinese production, were facing an existential threat from the proposed 145 per cent tariffs. This move seems to have been aimed at alleviating the concerns of everyday Americans, whose purchasing power could be greatly affected.

While the decision provides temporary relief, it underscores the importance of American consumers and how their preferences influence the trade war. The Trump administration also confirmed that the tech products exempted from tariffs will eventually face new levies on semiconductors.

Beyond tariffs, China has other tools at its disposal. In a recent paper, experts Evan Medeiros and Andrew Polk outlined China’s “precision-guided economic munitions,” including export controls, antitrust investigations, and cybersecurity reviews. These tactics target specific US firms and industries, building China’s negotiating leverage.

It’s not just China flexing its muscle. In an interview, European Commission President Ursula von der Leyen mentioned that if negotiations with Trump fail, the EU might escalate its retaliation, targeting US services exports and online ad sales.

But China’s approach stands out. While the EU remains focused on negotiations, China’s response has been to retaliate with tariffs and dismiss US attempts to engage in talks. Over the weekend, the Chinese Ministry of Commerce labeled US tech exemptions as a “small step” in the right direction.

By Naila Huseynova