- Because China imports far fewer goods from the U.S. than the U.S. does from China, Beijing is limited when it comes to retaliatory tariffs.
- So China may look to impose other measures, like stricter regulations or launching investigations of U.S. companies.
- It could also weaken its currency or further cut corporate investments in U.S. assets.
President Trump escalated hison Friday, boosting U.S. tariffs to 25 percent on $200 billion of imported Chinese goods. As promised, China on Monday struck back, vowing to raise its tariffs on from coffee to batteries to spinach, effective June 1.
The White House has also said it will start work on Mr. Trump's previous threats to impose tariffs on essentiallyimported goods from China, which was America's biggest trading partner last year. Those levies would be added to what Mr. Trump said is about $325 billion of Chinese imports not subject to current U.S. tariffs.
Can China simply retaliate again if the Trump administration follows through on that threat? No so easily. That's because the U.S. importsthan China imports from the U.S. So China can't directly impose retaliatory tariffs equal to Mr. Trump's promise to hit the remaining Chinese imports. The U.S. just doesn't send enough goods to China.
What, then, might Beijing consider if the trade war deepens?
One frequently mentioned option would be to sell off some of its massive holdings — more than $1 trillion — of U.S. Treasury bonds. Still, while that raises serious concerns, experts say. Greg McBride, chief financial analyst at Bankrate, said China dumping U.S. bonds "would be as detrimental to them as anybody else." That's because in pushing down the price of Treasuries, China would be hurting the value of its own U.S. bond holdings.
Here's a look at some of the other possible moves beyond tariffs that China could make in a prolonged trade war:
Regulation and disruption
China's state-dominated and heavily regulated economy gives authorities an arsenal of tools to disrupt U.S. companies. They can withhold licenses, launch new taxes or start anti-monopoly or other investigations. Beijing could also slow down customs clearances, delay visa applications or use health and safety rules to stifle operations, some economists have said.
U.S. companies have long complained that China can make it difficult for them to access its massive market and sometimes doesn't play fair under global trade rules, especially those tied to technology and intellectual property. But as a way to prompt better behavior from Beijing.
"While we appreciate the administration's commitment to addressing China's unfair tech trade policies and practices, this trade conflict has taken a significant toll on U.S. businesses, workers, and consumers," the Information Technology Industry Council, a tech lobbying group, said in a statement Friday. It pointed to higher costs for parts used to make "modems and routers" as one immediate example.
Companies that make products with complex technology, like Boeing, GM and Apple, also want to sell their finished goods into the giant Chinese consumer market. Boeing delivered its 2,000th plane to a Chinese airline in 2018 and predicts the country's demand for them will double in the next two decades. GM in April cited slowing China sales as one reason for its quarterly profit drop. Apple got about 20 percent of its total 2018 revenue from China sales. And Tesla's Elon Musk has plans to build a giant factory there.
Boeing shares dropped nearly 5 percent Monday on the prospect of lost Chinese sales. But for now, some analysts don't expect China to retaliate this way just yet. Beijing so far has exempted some Boeing planes from retaliatory actions, including tariffs.
"We expect the same to take place this time around, and do not expect a major impact on Boeing from these announcements," CFRA analyst Jim Corridore wrote in a note to clients Monday. He kept a "buy" rating on Boeing stock.
Weaken its currency
"China could raise its tariffs to a uniform 25 percent and extend them across all U.S. trade. It could squeeze GM China. Or give a lot of orders to [rival planemaker] Airbus even if Airbus doesn't locate an A330 line in China, " Brad Sester, a senior fellow for economics at the Council on Foreign Relations, wrote in a blog post on Friday. "But letting the yuan weaken has always been, in my view, the logical 'asymmetric' Chinese response to a trade war." If the Chinese currency were to drop in value, it would make the country's goods less expensive in foreign markets, propping up export demand and volume abroad.
Slow U.S. investments even more
Chinese investment in the U.S. is already falling. It dropped more than 80 percent from 2017 levels in 2018 to $5 billion. In 2017, that investment declined to $29 billion from $46 billion in 2016, according to a new report from Rhodium Group.
If sales of U.S. assets by Chinese companies are counted, China's investment in the U.S. was a negative $8 billion, according to the report. Meanwhile, U.S. investment in China last year fell slightly to $13 billion from $14 billion in 2017, according to Rhodium.
Chinese investors looking to buy U.S. assets are also facing more detailed scrutiny and screening from the Committee on Foreign Investment in the United States (CFIUS). Rhodium estimated $2.5 billion in deals were abandoned in 2018 "due to unresolved CFIUS concerns." Recently, for instance, CFIUS ordered a Chinese company to over privacy concerns as U.S. regulators sharpen rules.
Raise an economic iron curtain?
Some experts argue that a protracted trade war fueled by tariffs in the name of national security risks cutting off suppliers that U.S. tech companies depend on. Such a scenario might create an "economic iron wall," former Treasury Secretary Hank Paulsonon Face the Nation Sunday.
"It's vitally important we protect our national security, but in growing [economically], an important part of trade is technology related," Paulson said. "And so the real risk is that both countries through their actions will throw up or create an economic iron wall, which means we'll be decoupling global supply chains, right? We'll be having two systems with incompatible standards in rules."
Further cut U.S. agricultural imports
Even as U.S. exports of soybeans and other crops have fallen amid the trade war, China is still a dominant U.S. agricultural export market, Reuters noted last month. To help American farmers affected by retaliatory measures from China and other countries, the Trump administration last year promised to disperse $12 billion in agricultural subsidies. That includes payments to make up for lost sales of soybeans and corn, crops whose prices are dropping. On Monday, Mr. Trump said he would make another $15 billion in farm aid available as the trade war escalates.
China was the fourth-largest export market for U.S. farm goods last year, and even with existing retaliatory tariffs, it bought $9.3 billion in U.S. agricultural products in 2018. But that's down from $14 billion in 2017, according to government data. U.S. farm income in 2019 is forecast to tumble to roughly $69.4 billion, about 45 percent below the 2013 high.
With reporting from CBS MoneyWatch's Kate Gibson and The Associated Press.