China has no good options for retaliating against Trump’s Huawei ban

The president of the USA UU., Donald Trump, has made Huawei the most important history of technology at the moment by forbidding him from doing business with American companies. Huawei, China's technology champion, has lost access to Google's Android and Intel chips, and has even seen other international partners such as ARM and Panasonic submit to American influence and discontinue trade. Previously, he had been on the way to becoming the world's largest smartphone maker, Huawei is now in such a desperate situation that the best metaphor his founder could create to allay fears is that the company is like an airplane with a hole in his side: do nothing. great, but still in the air.

Truñing Huawei with the hammer ban is, Trump admits, a negotiating tactic to focus China's attention on American discontent with the existing trade relationship between the two countries. It falls on a pile of punitive tariffs of the 25 percent that imposed to many Chinese imports to the EE. UU., And promised a new round of tariffs on virtually every Chinese export imaginable.

Two Chinese observer experts tell The Verge that China is very concerned about these restrictions in its most important foreign market, and has every incentive to respond, either to alleviate the sanctions or as a sample of your own economic strength. But both agree that China has few options, if any, available.

Veteran diplomat Hosuk Lee-Makiyama deliberately asks: "What's left for China to retaliate against?" Tariffs have already been imposed on the few classes of products for which it wants to protect its domestic market, and it excludes the American giants of the Internet such as Google and Facebook, so what can China realistically threaten as a counter measure? Some observers, such as Ben Thompson in Stratechery note that "China took the first pictures" in the current trade war when it expelled many technology companies from the United States, and now it is the United States that finally responds.

The Elliott Zaagman Institute of Lowy Institute has spent the last 10 years living and observing China, and He argues that the country's economic prosperity is more fragile than it seems. China "is already at a point where the growth rate is not an exit, it is an input", which means that the government establishes the objective it wants to achieve in each quarter and that the banks lend to reach that number. Beijing has made more monetary expansion, he says, than the US Federal Reserve. UU., The Bank of Japan and the EU combined. This has generated a series of toxic asset bubbles, such as in housing, which has had trickle-down consequences on the part of people who get into debt backed by overvalued real estate. Talking with him and Lee-Makiyama, you have the feeling that China's economy is closer to a pyramid scheme than a truly prosperous and thriving giant.

Retaliation is particularly risky because China's economy is based on increasing trade with the world, as evidenced by the massive Belt and Road Initiative to develop land and sea routes for faster transport of goods. And Huawei, although it is a private entity, has been very helpful in acquiring high value overseas business with its leadership in network infrastructure, 5G equipment and, more recently, premium smartphones. Lee-Makiyama points out that because the country lacks a social safety net, he can not afford to lose his foot, which Huawei's setback inevitably represents. Economists, he says, have long held 6.5 percent economic growth as the threshold below which China can not go down if it is to keep its debt growing, and China reported 6.4 percent growth. in the first quarter of 2019, before Trump's toughest rates had come into effect.

It is in this context that we must observe China's seemingly formidable arsenal of weapons that it could deploy against the United States.

There are also more sophisticated types of financial warfare. China has a trillion dollars of US debt, which could tip in global markets and, therefore, trigger a rise in interest rates for the US economy. Robert J. Samuelson of The Washington Post explains the mechanics of this succinctly, however, argues that China will be doing so much harm to itself in the process. A slowdown in the US economy UU It would lead to an even smaller appetite for Chinese exports, the US dollar could also go down in value and make Chinese products less attractive, and any US treasury. UU That China possesses would also be worth less. This illustrates the inherent symbiosis between Chinese production and US consumption, which together have formed the backbone of the global economy over the past 20 years.

The most threatening response since Huawei became a trade pawn for Trump has been a visit by President Xi Jinping to a rare earth facility. This was a wordless reminder of China's dominance in the collection and processing of rare earth minerals for every smartphone, laptop, hybrid car and virtually anything more advanced than a gas oven. The executive directors of two US headset manufacturers UU The Verge is told that China is the only place to buy the necessary neodymium magnets for its products: one said that China is the only source, the other said it controls 95 percent of the market. If you struggled to wait a few weeks for those new and sweet Powerbeats Pro to go on sale, try waiting months and months to get an alternative source of magnets.

And yet, as my colleague James Vincent has already proposed, the rare earths are Not the secret weapon that China imagines they are. They are not so rare, the response to the hoarding of Beijing's offer would be that production would be economically viable and increase elsewhere, and the end result would be fewer jobs and fewer exports to China. Lee-Makiyama sees this as an unsustainable scenario and points to China's unsuccessful attempts to use rare earths as a commercial club in its relations with Japan and the United States in the past.

Finally, and most obviously, the Chinese government could make the response of imposing sanctions on US companies operating within their borders. borders. Even with an older-model iPhone assembly in India, the vast majority of Apple's smartphone business is based on Chinese territory. Chip makers are even more dependent, as an analysis by HSBC finds that Apple's compatriot, Qualcomm, has 65 percent of its revenue vulnerable to disruption of trade with China. Other technology firms in the US UU With similar exposure, they include Broadcom with 54 percent, Micron with 51 percent, and AMD, Intel and Texas Instruments, all of which accumulate at least a quarter of their revenues in continuous trade with China.

Through impositions in brick and mortar stores. Chinese imports account for 26 percent of Walmart merchandise, which is at the lower end compared to a more typical number such as 34 percent of Target, according to UBS. An additional UBS investigation says that the Trump government tariffs imposed on Chinese imports "could put at risk $ 40 billion in sales and 12,000 stores." The American Apparel & Footwear Association calls the next round of tariffs "a self-inflicted wound that will be catastrophic for the nation's economy." If the tariffs are catastrophic, what would a total ban on China be like? more effective than Beijing could handle in its negotiations with Washington, but the corresponding impact on Chinese trade would be so disastrous.

According to Lee-Makiyama's estimate, there is no scenario involving China cutting or restricting business with The World The US economy will be acceptable to the country economically, even with its rapidly growing national consumer market, China still needs more consumers for its goods and services, and with Apple and its compatriots such as Nike, General Motors and Walmart employing millions of Chinese workers, Trump has the advantage he needs to play hard.That situation will not last long, warns the diplomat, and now it could be the last good opportunity for the United States to rely on its mutual dependence on China. If the commercial relationship remains as it is, China will eventually grow to be colossal both as producer and consumer, and then the US influence would be zero.

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