Why China will not Back Down from a Trade War

On Tuesday (4/3/2018) the US published a list of Chinese imports, set to be hit with a $50 billion tariff increase. This is the latest in an escalating trade skirmish between the US and China, that could escalate into a war. On Monday (4/2/2018) China implemented a $3 billion tariff hike on several US imports including fruits, pork and steel. This was in response to Trump’s tariffs on Chinese aluminum and steel one month ago. Back then, he was tweeting, “trade wars are good and easy to win,” but now it appears he is getting a dose of his own medicine.

Xi is unlikely to back down since, several facets of the Chinese economy bolster it against the vicissitudes of a possible trade war. First, China has built up its internal economy. China’s “township village enterprises” (TVEs) helped rural incomes rise by 300% between 1989 and 2005, fueling domestic demand. Moreover, China’s internal markets received an unprecedented boost in 2008, when the government launched its $586 billion stimulus plan in response to the financial crisis. China has also maintained record high levels of investment in infrastructure and built a world renown high speed rail system that has greatly reduced transport costs to the interior. Correspondingly, exports as a percentage of GNP have been falling steadily since 2006, and with them reliance on trade with the US.

Second, South-South economic ties have been strengthened by China’s one-belt one road project and Asian…

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