Beijing calling Mr. Trump’s bluff – Arthur Kroeber

China might have the upper hand in dealing with the US president’s efforts to curtail the country’s economy with sky-high tariffs, suggests leading economist Arthur Kroeber, author of China’s Economy: What Everyone Needs to Know®, in the Christian Science Monitor. “The government believes China can sustain the pain longer than the U.S. consumer can … and the U.S. will cave first,” he says.

The Christian Science Monitor:

Today, Mr. Xi’s top priority economic strategy is to promote Chinese advanced, high-tech manufacturing, and he is pouring massive government investment into this task. In 2019 alone, China spent an estimated equivalent of 1.7% of its gross domestic product on industrial policy – four times that of the U.S., according to a CSIS study.

Such investments have led to successful Chinese innovation in key industries such as electric vehicles, and green energy transition products such as solar power equipment and lithium-ion batteries.

This dominance serves China’s goal to create a dense web of bilateral trade and investment ties that bolster its wealth and influence, while maintaining China as a fortress of industrial and technological self-sufficiency, says Arthur Kroeber, head of research at the financial services company Gavekal and author of “China’s Economy: What Everyone Needs To Know.”

“They want to have leverage over the rest of the world, which they think is best achieved through very deep economic ties,” he says. “If countries have a lot of eggs in the China basket, it’s less easy for them to rely on the U.S.”

China’s retaliation against Mr. Trump’s tariffs last Friday – imposing 34% in additional tariffs on all imports from the U.S., starting April 10 – shows that Beijing is calling Mr. Trump’s bluff, he says. After the first U.S.-China trade war launched by Mr. Trump in 2018, Beijing spent years fortifying itself against U.S. pressure and developing various retaliatory tools.

“The government believes China can sustain the pain longer than the U.S. consumer can … and the U.S. will cave first,” he says. As a result, in Beijing the plan is not to let Mr. Trump dictate the terms with his off-and-on tariffs.

“If you are China,” he asks, “do you have to play that game?”

Beijing may consider more drastic steps, such as devaluing its currency to make its exports cheaper, says Mr. Kroeber. Indeed, on Tuesday China’s central bank set its reference rate for the Chinese yuan at the lowest level since September 2023 – a move considered a warning signal to Washington.

Beijing’s propaganda apparatus is working overtime to signal resolve.