Jonathan Cheng
Appearances
WSJ What’s News
China Readies Its Trade-War Arsenal
China comes into this pretty well prepared psychologically. They have thought about all the bits of leverage that they have. So there is some pain that China can inflict on the U.S. reciprocally. But beyond the tit-for-tat tariffs, there's so much that China can do.
WSJ What’s News
China Readies Its Trade-War Arsenal
Yeah, that's right. I mean, China is either playing hard to get. That's one way to look at it. The other way is they're just not interested in talking. And if they're not interested in talking, it may just be that they feel comfortable. They feel like they're coming into this from a position of strength. So it's hard to know what exactly is the case.
WSJ What’s News
China Readies Its Trade-War Arsenal
Obviously, we are trying to do our best to figure that out. But Beijing is a tough nut to crack even for Washington. But certainly there hasn't been any movement that we're aware of on the negotiations front.
WSJ What’s News
China Readies Its Trade-War Arsenal
Yeah, I mean, look, China comes into this pretty well prepared psychologically. They have thought about all the bits of leverage that they have. They can make it harder for American companies to sell into China. And yes, American companies do sell a lot to China. China is the third largest destination for U.S. exports. So there is some pain that China can inflict on the U.S. reciprocally.
WSJ What’s News
China Readies Its Trade-War Arsenal
But beyond the tit for tat tariffs, there's so much that China can do. You have a lot of companies. The most obvious ones that come to mind, of course, are Apple and Tesla. Both of these companies rely on China as a manufacturing base. Tesla's largest factory in the world is in Shanghai. And so what could China do there?
WSJ What’s News
China Readies Its Trade-War Arsenal
Well, it doesn't take much imagination to think that there are levers that they can pull here.
WSJ What’s News
China Readies Its Trade-War Arsenal
Yeah, and actually that's not something that's unfamiliar in the West because we've seen many industries make that allegation against China, and they've been doing it for years in terms of, you name it, high-speed rail, automotive. aerospace, all sorts of different industries where China permitted Western companies to access the market.
WSJ What’s News
China Readies Its Trade-War Arsenal
But through joint ventures and through these joint ventures, there was a transfer of knowledge, a transfer of IP in many cases that in some cases, the Western companies were aware that it was happening, but it was worth the trade-off. And so what Lingling is describing here, it depends on how coercive it would be, but that may actually still be a trade that some companies would be willing to make.
WSJ What’s News
China Readies Its Trade-War Arsenal
Well, I mean, the way to read it may be that you have somewhat of a relief rally because what it showed is that Trump can blink, if that's the word you want to use, or be more pragmatic or respond to some of the pressures that he's feeling around him. It signals that Trump is not going to launch and persist with a destructive trade war even when everyone around him is telling him otherwise.
WSJ What’s News
China Readies Its Trade-War Arsenal
On the other hand, the relief rally you see in the China-linked markets is obviously not as much as you've seen in other markets, and that's because China remains the main target. Now, the fact that tariffs have gone up from 104% to 125%, I think most economists would tell you that that really doesn't matter. I mean, after a certain level, call it 60% or higher,
WSJ What’s News
China Readies Its Trade-War Arsenal
It really doesn't matter what the tariff level is because it will bring trade on that tranche of products basically to a standstill.
WSJ What’s News
China Readies Its Trade-War Arsenal
Maybe so. But if it's only for 90 days, then it's not much of a reprieve because you need to figure out where you want to be, not just for the next 90 days, but for the foreseeable future.
WSJ What’s News
China Readies Its Trade-War Arsenal
That's not settled. But if we're talking about exporting for final purchase, actually, it's only the US that has become more difficult to sell to. China, for the time being, presumably, I mean, it depends again on where the Trump tariffs land, but there's still 200 other countries that China can sell its goods to.
WSJ What’s News
China Readies Its Trade-War Arsenal
Now, if Chinese goods start flooding other countries, because these products can't go to the US, then yes, of course, those countries may then put up their own barriers. But I think that's another problem for another day for a lot of people. Let's find out first what happens with the Trump tariffs. And only after that can we even begin to think what the next order questions are.