Beijing has built strong defences to "cushion" the shock of US-led economic aggression, but the confrontation is throwing emerging economies into disarray and posing a threat to global economic growth.
The US-China trade war has escalated dangerously, after the United States applied 10 percent duties on Chinese imports worth $200 billion, which went into effect on September 24.
Trump seems keen on gradually implementing the tariffs, with the next round of tariffs reaching 25 percent scheduled for January 1 next year.
The effects area already felt however, according to the International Monetary Fund.
The IMF's World Economic Outlook forecast cited the trade wars as the "greatest near-term threat" to emerging markets.
The report warned that while the newest tariffs represent just a small share of global trade for now, if the measures escalate they could knock down 0.5% off global growth by 2020.
"The risk that current trade tensions escalate further—with adverse effects on confidence, asset prices, and investment—is the greatest near-term threat to global growth," the IMF's economic counsellor Maury Obstfeld said.
In view of the upcoming midterm elections, political experts argue that Trump is aware of the negative impact tariffs can have on his low-income voter base with their reliance on competitively-priced Chinese imported products.
Though the US Commerce Secretary Wilbur Ross tauntingly declared that China is “out of bullets,” experts on the ground paint a different picture.
Keith Wade, Chief Economist at Schroders, asserts that China will hold to its trade policies which have been instrumental to its ideological ‘economic miracle’ and to future economic growth.
Hassan Imran, an independent analyst speaking to TRT World notes that unlike the US, Beijing is unconstrained by the electoral cycle. He predicts that Chinese President Xi Jinping is likely to remain in office for decades, particularly after constitutional presidential term limits were abolished earlier in March 2018, while Trump, his counterpart, will have to face another election.
On the other hand, Fang Xinghai, vice chairman of the China Securities Regulatory Commission, boldly asserted that the Trump administration would not be able to make any significant dent in the Chinese economy.
In the worse-case scenario, he said, the US can apply tariffs on all Chinese goods coming into the US. This, according to him, would only affect 0.7 percentage points of China's GDP growth; and that Beijing has sufficient tools to "cushion" the shock.
As the White House comes to terms with China's entrenched position, more extreme measures may be adopted for the sake of supporters who'd like to see Trump come out of this stalemate looking good.
Conscious of the upcoming US midterm elections, President Trump tweeted a warning to Beijing.
.....China has been taking advantage of the United States on Trade for many years. They also know that I am the one that knows how to stop it. There will be great and fast economic retaliation against China if our farmers, ranchers and/or industrial workers are targeted!— Donald J. Trump (@realDonaldTrump) September 18, 2018
Withold Bahrke, senior strategist at Nordea Investments calls it a war over "future economic supremacy.”
Jack Ma, Chinese billionaire and the owner of Alibaba, predicts that this is only the beginning of the standoff which could last 20 years. “If you want a short-term solution” he says, “there is no solution”. Neither side seems likely to step-down anytime soon.
So are we experiencing ‘Economic Warfare’?
A day after the latest round of US sanctions, the Chinese government hit back with 5-10 percent tariffs on $60 billion worth of US goods, also set to come into effect on September 24. The tariffs will target goods produced in states loyal to Trump.
In 1999, two colonels in the People’s Liberation Army released a book entitled ‘Unrestricted Warfare’ proposing that developing China can confront the United States through economic warfare without military action.
While Beijing has avoided describing the escalating trade war along those lines, Steve Bannon, Trump’s former top strategist has previously asserted that “Trump is engaged in a sophisticated form of economic warfare” with the Chinese.
No more imports to target
If both sides follow-through on these tariffs, they will exhaust imports to target and risk further escalation.
During the 2016 presidential campaign, Trump often invoked what he called "unfair" Chinese trade policies. He aims to make Chinese products more expensive so that US businesses are pushed to move their production and supply lines out of China and possibly encourage them to return to the US.
The official objective for the tariffs however, is ending the theft of US intellectual property, essential to the US technological and economic edge. The Intellectual Copyright Commission assesses the value of IP theft to be as high as $600 billion annually.
Speaking at the World Economic Forum on Tuesday, Premier Li Keqiang, confidently asserted that Beijing would weather tariffs with ease, while vowing to punish those responsible for IP cybertheft, in an indirect concession to Trump.
In July, Trump previously accused China of devaluing its currency to bolster its export industry; which would take the edge off of US sanctions. Premier Li hit back, stating that China would never use its currency as a weapon in the trade war.
While tariffs may hit Chinese jobs, Beijing can boost domestic demand to offset loss of Chinese exports to the US, or let the yuan slide to regain a more competitive economic posture.
Emerging Economies risk of ‘Tsunami of Contagion’
The IMF also warned against the impact likely to be had against emerging markets, and warned that headline figures are not reflecting underlying stress in certain economies caused by factors like rising oil prices, a stronger dollar and increasing interest rates.
Global markets will likely feel the full brunt of the trade war before long. The World Bank’s Global Economic Prospects report warns of excessive debt among emerging economies, which can be exacerbated by currency fluctuations and financial instability.
If an emerging market slide takes place, the entire global economy could be affected. During the 1997 Asian financial crisis, anxiety over one market led to the rapid fall of others regardless of healthy economic foundations. Economists called it the “contagion effect”.
The World Bank warned that conditions for emerging markets could “worsen significantly”. China’s significant position in the global economy bridges emerging markets and developed economies.
“China is the locomotive that keeps the emerging market train rolling along," says Frederic Neumann, head of Asian economics research at HSBC Holdings Plc, Hong Kong. He warns that slower Chinese growth presents “an especially acute challenge to emerging markets”, after struggling with higher interest rates, and a stronger dollar for their debt.
In China, corporate debt is around 165 percent of GDP, in South Korea it is 82 percent , in Malaysia 51 percent , and in India 38 percent . Chua Hak Bin, senior economist at Maybank Research in Singapore calls China the “linchpin”, warning that “the emerging world and rest of Asia will inevitably feel the full gravity of the downforce," if the Chinese economy is undermined.