NEVER INTERRUPT your enemy when he is making a mistake. That sounds like Sun Tzu, a renowned Chinese strategist, but the adage, attributable to Napoleon Bonaparte, originated on the other side of the world. Perhaps that explains why China’s leader, Xi Jinping, seems oblivious to the advice.
On April 4th his government announced an extra tariff of 34% on all American imports. The rate exactly matches the new tariff on Chinese goods announced by Donald Trump, America’s president, two days earlier, when he unveiled arbitrary duties on all of America’s trading partners. “Liberation Day”, as Mr Trump called it, was a catastrophic mistake, like abandoning the high ground near Austerlitz. It caused the S&P 500 index of large American firms to fall by almost 5% the following day. China is not merely interrupting Mr Trump’s false movement but replicating it. The tariffs would come into force on April 10th, a day after Mr Trump’s levies are due to be implemented.
China’s retaliation has only worsened the global stockmarket rout. American shares have so far fallen by another 5% after the announcement. Things could escalate. “CHINA PLAYED IT WRONG,” Mr Trump said on his social-media network. For once, he was right. Until this latest act of mimicry, China had seemed to be playing a cannier game.
After Mr Trump hit the country with an earlier round of 20% duties—supposedly tied to its role in fentanyl production—China refrained from matching them tit-for-tat. Instead it introduced tariffs of 10-15% on a narrower range of goods, such as farm machinery, oil and soyabeans, that it could readily buy elsewhere. It had learnt from the first trade war that it could not match Mr Trump’s tariffs, dollar for dollar, if only because it imports so much less from America than America buys from it.
There are, however, other ways to fight back. The world’s two biggest economies, so elaborately intertwined, both have a multitude of ways to hurt each other. In some cases, for example, China has more clout as a seller than as a buyer. It is a dominant producer of many rare metals, such as tungsten, which is used in drills, jets and saws. In response to the fentanyl duties in February, it imposed export controls on that metal and others like molybdenum.
China can also use its power as a host of American capital. Multinational companies from the United States generated sales of about $490bn in China in 2022, more than twice the amount of American exports to China, as Xiangrong Yu of Citigroup, a bank, has pointed out. That gives China plenty of targets to hit.
China used all these weapons again on April 4th. It restricted exports of seven types of metals, including gadolinium, used in MRI scans, and dysprosium, in magnets. It also curtailed exports to 16 American outfits, launched an antitrust investigation of DuPont China and added 11 American defence firms to its “unreliable entity” list, owing to their dealings with Taiwan. The companies, including Skydio and BRINC Drones, two dronemakers, could now be barred from investing in China or trading with it.
These targeted measures were, however, clearly not enough for China’s leaders this time. They felt the need for a retaliatory tariff of Trumpian sweep. China could have calculated a levy that would maximise the discomfort for America but caused the least harm to itself. Instead, its leaders copied America’s tariff rate, however arbitrary its derivation. Indeed, the formula used to calculate America’s new tariffs has invited scorn from trade economists, including some of those academics the administration itself cited when justifying its method. That cringeworthy bit of maths has now dictated the trade policy of the world’s two biggest economies.
During the first trade war in 2018, Mr Xi explained his mindset to 20 company bosses, mainly from America and Europe. “In the West you have the notion that if somebody hits you on the left cheek, you turn the other cheek,” he said. “In our culture, we punch back.” Fair enough. But what if somebody is punching themselves in the face? Must the Chinese punch themselves back?
Be the first to comment