The US market saw a significant plunge in investment from China in the first five months of the year amid a growing trade row between the world’s two largest economies.
Chinese investments totaled $1.8 billion from January through May, representing a 92-percent drop against the same period a year ago. That’s the lowest level in seven years, according to the latest report by Rhodium Group, a research provider that tracks Chinese foreign investment.
Chinese corporations that had been pumping cash into the US to cement ties over a long period have cut their investments in recent years. In 2017, investments declined by 36 percent to $29.7 billion from $46.5 billion during the previous year.
“The more confrontational approach of the Trump administration toward economic relations with China has cast some doubt, in these companies’ minds, about their position here,” said Thilo Hanemann, a director at Rhodium Group, as quoted by CNN Money.
The plunge was reportedly triggered by an ongoing trade conflict between Washington and Beijing, in which the US administration has taken an aggressive stance towards Chinese trade policies. Last week, the White House introduced 25-percent tariffs targeting $50 billion of Chinese imports to the country. US President Donald Trump threatened to hit another $200-billion of Chinese goods with an extra 10-percent tariff after Beijing retaliated.
Trump has persistently slammed Chinese trade practices, calling them unfair. The US president has also accused Chinese companies of stealing American technology and intellectual property. As a part of restrictive measures in March, the US imposed tariffs on imports of steel and aluminum from China along with other countries including India and Russia. Earlier this month, that measure was extended to some of the US’ traditional allies – the EU, Canada and Mexico.
A spokesperson of China’s Ministry of Commerce (MOC) said Tuesday that if the United States loses its rationality and unveils another list of Chinese products for additional tariffs, China will have no choice but to take comprehensive measures combining quantitative and qualitative ones to resolutely strike back.
After unveiling plans to impose additional tariffs on Chinese goods worth around 50 billion U.S. dollars, the United States went even further by threatening to identify 200 billion U.S. dollars worth of Chinese products for additional tariffs.
“Such practice of imposing extreme pressure and blackmailing is contrary to the consensus the two sides have reached through rounds of consultations, and disappoints the international community,” the spokesperson said.
“The trade war waged by the United States is against both the law of the market and the development trend of today’ s world. It undermines the interests of the Chinese and American people, the interests of companies and the interests of the people all over the world,” said the spokesperson.
The response taken by China aims to safeguard and defend not only the interests of the Chinese nation and the people, but also free trade regime and the common interests of mankind, said the spokesperson.
No matter how external environment changes, China will follow its established rhythm, stick to the vision of making development people-centered, resolutely advance reform and opening up, resolutely promote high-quality economic development, and accelerate the development of a modern economy, said the spokesperson.
China may look beyond tit-for-tat tariffs in the looming trade war with the United States, analysts say, with a range of creative options at its disposal, including targeting Hollywood films or dragging its feet on North Korea.
Fears of a debilitating trade war between the United States and China are rising after US President Trump said up to $450 billion in Chinese goods — nearly all of its exports to the US — could be in the firing line for higher taxes.
Beijing immediately responded, calling Trump’s threat “blackmail” and warning it could hit back with “strong countermeasures combining quantitative and qualitative measures”.
But with only $130 billion of imports from the US last year, how would China hit back?
Why is Beijing retaliating?
“Retaliation has to be done, if you don’t retaliate you lose even more, so that’s why you have a trade war,” said Yukon Huang, a senior fellow at the Carnegie Endowment for International Peace who has discussed the trade tensions with top Chinese officials.
Other countries have learned from Japan’s experience, Huang said, alluding to the Asian giant’s historical trade tensions with the US, which cooled off only after Tokyo accepted quotas on exports to the US, reduced its import tariffs and allowed its currency to appreciate.
“Japan lost 20 years,” Huang said, referring to the country’s two decades of no growth. “You both lose, but if you don’t do that, only you lose.”
Beyond tariffs: how else can China hit US products?
The iPhone X, Buick Excelle car, Starbucks’ double mocha macchiato and tickets to see Tom Cruise’s summer action flick are all hot sellers in China.
They could all become subject to restrictions should tensions snowball into an all-out trade war with the US, analysts say.
Beijing has shown to other countries that it can use wide-ranging tactics to mete out economic punishment.
Last year, when geopolitical frictions with Seoul ratcheted up, South Korea’s conglomerate Lotte saw scores of its 120-plus outlets in China shut down, ostensibly over “safety issues”, while angry protesters demonstrated in front of others.
China’s hordes of tourists, usually hungry for the South’s cosmetics, stopped arriving in Seoul as Beijing banned group tours.
Some US businesses are already getting hit: China last month said it had stepped up inspections of key US imports such as pork and automobiles â€’- stranding them in ports -â€’ because of “problems”.
“China still has plenty of weapons to use once it runs out of quantitative measures,” economist Andrew Polk said in a newsletter.
Could Beijing end cooperation on North Korea?
Punishing UN sanctions on North Korea — approved and enforced by Beijing — drove Pyongyang to the negotiating table, analysts say, landing Trump his made-for-TV summit with Kim Jong Un in Singapore earlier this month.
To achieve the North’s complete denuclearisation, Trump likely needs Beijing to stay on board with the sanctions, but a trade war could change Chinese thinking, said Cheng Xiaohe, an international relations professor at Renmin University.
Cooperation between China and the United States on the North “will become very complicated and very difficult,” Cheng said.
In an indication of China’s leverage on the issue, Kim visited Beijing exactly one week after the summit to brief President Xi Jinping, his third trip to China this year.
How will the trade spat play out?
Huang, the economist, outlined three stages of a trade war, from prices rising, to imports and exports shifting countries, to firms moving production and investment.
During the final stage, a prolonged trade war will be “affecting the growth rate by significant margins” and lead to a collapse of global trade, Huang said.
“Tensions are not going to go away. Probably going to get worse before they get better,” he said.