Trade war: China may be moving gradually towards selective retaliation

China held off detailing how it plans to retaliate against President Donald Trump’s threat to impose tariffs on $200 billion worth of Chinese-made goods, indicating a subtle shift in tone amid a simmering trade war with the US
 

Repeating a warning that China will retaliate if Trump’s proposed tariffs come into effect, Commerce Ministry spokesman Gao Feng said the government will take “necessary” steps to hit back. Pressed for details, he stopped short of repeating a previous pledge to respond with measures of equal size and didn’t outline specifics about which measures China will retaliate with.

Wall Street Economists Run the Numbers on Trump’s Trade Salvo

To observers, the slight change of tone suggests China could be playing for time with the aim of restarting stalled negotiations to resolve the dispute and limiting the need for it to unleash punitive measures that would rebound and hurt its own economy.

"China may be moving gradually from the current tit-for-tat mode of retaliation toward a controlled, selective retaliation," said Chang Jian, chief China economist at Barclays Plc in Hong Kong.

Indeed, Chinese and US officials have raised the prospect of resuming trade talks, though no concrete steps in that direction have become evident yet. On Wednesday, China’s Vice Minister of Commerce Wang Shouwen said “when we have a trade problem, we should talk about it.” While that came amid fresh threats of retaliation from Beijing, it matches some willingness from the Trump team to resume talks at a high level, according to a person familiar with the administration’s thinking.

Asian stocks rose Thursday after a bruising sell-off the previous day, despite there being little fresh evidence that the trade tensions would abate. The yen declined and crude oil rebounded from its biggest plunge in two years on Wednesday.

How China responds to the latest Trump threat is complicated by the fact it imported $130 billion of US goods last year, less than a third of the value of US imports from China. That means in an all-out, tit-for-tat trade war, China would not be able to match the tariffs dollar by dollar.

Further evidence of Trump’s trade war with China is set to show up in Chinese economic data due over the next few days. June trade data is due on Friday and second quarter gross-domestic product figures are scheduled for release on Monday.

"It is clearly not in China’s interests to be engaged in an escalating economic conflict with the United States which will be harmful to China’s growth," said Edward Alden, a Washington D.C. based trade specialist at the the Council on Fore­­­ign Relations and author of ‘Failure to Adjust: How Americans Got Left Behind in the Global Economy.’

"I do think the Chinese should be looking for every avenue possible to find a compromise," Alden said.