After President Trump declared "economic war" with China, seemingly following Bannon's strategy to maintain hegemony...
“We’re at economic war with China,” he added. “It’s in all their literature. They’re not shy about saying what they’re doing. One of us is going to be a hegemon in 25 or 30 years and it’s gonna be them if we go down this path.”
Bannon said he might consider a deal in which China got North Korea to freeze its nuclear buildup with verifiable inspections and the United States removed its troops from the peninsula, but such a deal seemed remote. Given that China is not likely to do much more on North Korea, and that the logic of mutually assured destruction was its own source of restraint, Bannon saw no reason not to proceed with tough trade sanctions against China.
“To me,” Bannon said, “the economic war with China is everything. And we have to be maniacally focused on that. If we continue to lose it, we're five years away, I think, ten years at the most, of hitting an inflection point from which we'll never be able to recover.”
China state media immediately signaled the nation would hit back against any trade measures, as it has done in past episodes, and now, thanks to a treatise in Chinese official mouthpiece, China People's Daily newspaper, we have an idea of what those countermeasures could be...
China could take three countermeasures against the recent “Section 301” investigation initiated by the U.S. government, experts told Chinanews.com.
With growing trade friction between the two largest economies, the spokesperson of China's Ministry of Commerce made a strong response on Monday, saying China strongly opposes unilateral and trade protectionism acts conducted by the U.S., and will take all appropriate measures to safeguard its legitimate interests.
According to the report, limiting imports from the U.S., reducing exports to the U.S., and unloading dollar assets would be the most effective countermeasures.
China is America's largest export market behind the North America region, and also one of the fastest-growing export markets of the U.S. Uncle Sam relies heavily on China for trade.
Statistics show that the annual growth in exports from the U.S. to China averaged 11% in the past decade, almost twice the figure of Chinese exports to the U.S. Sixty-two percent of soybean, 14% of cotton, 25% of Boeing aircraft, 17% of automobiles, and 15% of integrated circuits produced by the U.S. have been shipped to China.
In addition, China is the second-largest export market of American agricultural products, buying 15% of the total export volume, according to U.S. government data.
Against such a backdrop, restricting imports of agricultural products and high-end goods would be a trump card for China as a counter action.
Marcus Noland, executive vice president of the Peterson Institute for International Economics, once said during an interview that it would be destructive if China limits the imports of American soybean and aircraft.
In addition, being the largest export market of China, the U.S. enjoys the benefits of cost-effective “made-in-China” products.
According to data released by the US-China Business Council, trade with China has saved American families $850 in 2015 on average. Oxford Economics estimates that China's low-price goods have resulted in a 1-1.5% lower price level in the U.S.
At a time when Americans are expecting Donald Trump's new trade policy to improve the current situation, the bilateral trade conflict would be damaging, said Lian Ping, chief economist of the Bank of Communications. Even small losses are unacceptable, he added.
Besides, China regained the title of Uncle Sam's largest creditor in June. America's financial stability would be impacted if China unloads its dollar assets on a large scale.
However, these three countermeasures would also harm China. As Chinese officials have stressed, there is no winner or future in a trade war.
Because of the resilience and huge potential of the Chinese economy, the U.S. would be worse hit in the long run, said Wang Wen, executive dean of the Chongyang Institute for Financial Studies at Renmin University of China.
With a complete industrial system, China is the only country in the world that owns all industrial sectors listed in the United Nations industrial classification of all economic activities.
Once conflict deepens, America's losses may not necessarily be less than China's losses, noted Bai Ming, executive director of the Institute of International Trade of Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce.
Mutual benefit leads to win-win results. Only by the joint efforts of both parties can trade relations between the two countries be pushed forward in a healthy manner.
As a reminder - and the following chart suggests - "nothing lasts forever" and time is ticking...
As we noted previously, history did not end with the Cold War and, as Mark Twain put it, whilst history doesn’t repeat it often rhymes. As Alexander, Rome and Britain fell from their positions of absolute global dominance, so too has the US begun to slip. America’s global economic dominance has been declining since 1998, well before the Global Financial Crisis. A large part of this decline has actually had little to do with the actions of the US but rather with the unraveling of a century’s long economic anomaly. China has begun to return to the position in the global economy it occupied for millenia before the industrial revolution. Just as the dollar emerged to global reserve currency status as its economic might grew, so the chart below suggests the increasing push for de-dollarization across the 'rest of the isolated world' may be a smart bet...
The World Bank's former chief economist wants to replace the US dollar with a single global super-currency, saying it will create a more stable global financial system.
"The dominance of the greenback is the root cause of global financial and economic crises," Justin Yifu Lin told Bruegel, a Brussels-based policy-research think tank. "The solution to this is to replace the national currency with a global currency."