China has plenty of options to retaliate against US' latest trade action

US President Donald Trump may soon get a lesson about tangling with China on trade: Beijing can punch back.

China has a long history of tit-for-tat retaliation when it comes to trade disputes and may well dust off the same policy playbook in the wake of the Trump administration’s decision to slap tariffs on solar panels and washing machines.

The US will impose new duties of as much as 30 percent on imported solar equipment, the US Trade Representative’s office said Monday. Trump, who took office a year ago, also approved tariffs as high as 50 percent on imported washing machines, according to USTR. 

China’s Ministry of Commerce condemned the tariffs Tuesday, calling them a misuse of trade measures, and said it hopes Washington will show restraint in imposing trade restrictions. The tariffs aren’t directed specifically at China, but it is the world’s biggest producer of solar panels and exported 21 million washing machines last year worth almost $3 billion.

China’s Global Times says US will pay a price for tariff ‘tricks’

The US tariffs may signal the coming of a more acrimonious phase in US-China trade relations, though it has taken Trump more than a year to deliver on campaign pledgesto deliver punitive actions against nations deemed to be using unfair trading practices.

Punching Back

China’s economic might gives President Xi Jinping’s government the leverage it needs to strike back decisively, including scaling back purchases of American products and subjecting well-known US companies with large Chinese operations to tax or antitrust probes.

"This is the beginning of a rough patch in US-China relations," said David Dollar, a former US Treasury attache in Beijing and now a senior fellow at the Brookings Institution in Washington. "These initial measures are modest and are likely to be met by proportionate moves from the Chinese. The key question is whether US protectionism will escalate, which would damage both economies."

To read more about how China’s responded to previous trade action, click here

China is "strongly" dissatisfied with the US tariffs, which will worsen the global trade environment and impair the development of the industries in the US, the Ministry of Commerce said in a statement Tuesday.

South Korea’s trade ministry said Tuesday it asked the World Trade Organization to suspend concessions on US imports, seeking to re-instate tariffs. It didn’t specify on which products, and said the timing was coincidental as the move is part of a longer-running dispute.

China hasn’t been shy about threatening US corporate interests. A Communist Party newspaper warned in late 2016 that a trade war would have economic consequences. "Boeing orders will be replaced by Airbus," the Global Times said in an editorial. "US auto and iPhone sales in China will suffer a setback, and US soybean and maize imports will be halted."

The list of primary targets include US exports to China of airplanes by Boeing Co., Apple Inc. products and soybean, says Michael Every, head of financial market research at Rabobank Group in Hong Kong.

"Chinese think-tanks are likely scrambling to identify the industries in the President’s support base that will lose out the most should it come down to a bare-knuckle fight," says Pauline Loong, managing director at research firm Asia-Analytica in Hong Kong.

Boeing, the largest US exporter, has long been a key bellwether for trade relations. Xi gave Boeing a $38 billion order on a 2015 plant visit in Seattle.

After the US introduced duties on imports of Chinese solar panels in 2011, China later shot back with measures against the American polysilicon used to make those units. Along with other producers in the US, REC Silicon, a Norwegian producer of the material at factories in Moses Lake, Washington and Butte, Montana, was clobbered.

China has gone after foreign economic interests over political slights. Marriott International Inc. came under government criticism this month after its website listed Tibet and Taiwan under “nation.” The hotel company apologised. Norwegian salmon exports to China plunged after the country’s parliament awarded the 2010 Nobel Peace Prize to imprisoned Chinese dissident Liu Xiaobo.

A future risk is retaliation against American companies eager to build a presence in China’s rapidly growing services, retail, internet or financial industries.

"Trump’s guys are stuck in the dark ages," said Jim O’Neill, former chief economist at Goldman Sachs Group Inc. "Applying tariffs at a time when China is shifting more and more to a services and consumer-driven economy risks retaliation against the best opportunities the US has to benefit from China’s emergence."

Any Chinese reprisals this time will likely be measured though, not least because the impact of Trump’s tariffs on its exports will be small. Australia & New Zealand Banking Group Ltd. estimates solar panels represent less than 0.7 percent of China’s total exports.

"However, the action will still serve a warning to the Chinese authorities," said ANZ chief greater China economist Raymond Yeung. "Typically, China may review the market access or operation of foreign companies in response to trade actions against them. This is a risk Trump’s administration needs to consider."