Donald Trump once declared trade wars are easy to win.
In June, US applied 25% tariffs on 50 billion of Chinese goods. Three days later, US applied additionally 10% tariffs on 200 billion of Chinese goods. China responded with tariffs on 50 billion of US goods.
Which country has the advantage in this trade war ? Let us look at it from some perspectives.
1. Trade balance
China import from US : $130 billion
China export to US : $500 billion
US China trade alone accounts for more than 50% of US trade deficit.
China cannot keep up with US in charging tariff. China will run out of US goods to levy tariffs.
2. Mutual dependency
2.1 China relies on US for its core technology, such as the case of ZTE.
ZTE is banned from buying components from US company.
2.2 China depends on US for its agricultural products.
China import from US for 95 million tonnes of soybean. China produces 14 million tonnes of soybean. If China is determined to self-produced soybean, it would need 506 billion sqm of agricultural land to be self sustainable. China has about 1400 billion sqm of agricultural land. Is it feasible to use up to 33% of agricultural land for the sole purpose of soybean farming? The answer is obvious.
Argentina and Brazil are the number one and two soybean exported in the world. China could import soybean from Brazil. However, the soybean production, distribution, and sales network of Brazilian soybean are controlled by US company.
2.3 US company dependence of China market
GM sells more cars in China than in the US
Apple's 40 billion market in China
3. US dollar domination
3.1 Japan, China, Germany, their foreign reserve is held in USD. They are creditors to US. If they do not lend money to US, US prints its own money. US dollar depreciates. It is not good for the creditors. Therefore they continue to buy US treasury bonds. Furthermore, China is a trading country, the issuance of RMB is based on their reserve in USD.
3.2 Crude oil is priced in US dollar. To buy oil, USD is needed.
