MNI INTERVIEW: China Faces US Tariffs, Capital Restrictions
MNI (BEIJING) - The U.S. will inevitably impose tariffs on China next year and limit capital flows between the two countries as it pushes for a currency agreement to force yuan appreciation, a senior policy advisor told MNI.
China will need to increase its resilience against external shocks by focusing on its “dual circulation” strategy, which prioritises domestic consumption and high-quality production, while remaining open to international trade and investment, said Chen Wenling, chief economist at the China Center for International Economic Exchanges, a top-tier think tank.
The U.S. could delist Chinese firms from its stock market and ban American financial institutions from investing in China's high-tech industries, Chen said in an interview, pointing to President-elect Donald Trump's hawkish appointments, such as Jamieson Greer as trade secretary, who served as chief of staff to Robert Lighthizer, the post holder during Trump’s first term. “Direct investment from the U.S. in China's capital market will likely plummet, even to zero,” Chen said.
NEGOTIATION POSSIBLE
China will adhere to its independent monetary policy and will not change the direction of policy adjustment due to pressure from the U.S, Chen said. (See MNI: PBOC To Make Q1 Cut After Stance Shift-Former Officials) However, if the U.S. softens its China-containment stance, she does not rule out that the concerns of both sides can be resolved through negotiation. (See MNI: China Not Closed To Discussing Deal On Yuan - Advisors)
The large U.S. trade deficit with China stems from differing economic structures and significant demand for Chinese goods, a factor which could ultimately limit trade tensions, Chen continued, noting China’s large internal market demand also attracted U.S. firms. Beijing would further mitigate risks through continuing to diversify trade partners, with 60% of Chinese exports now destined for Belt and Road countries and fast trade growth seen with Russia, Africa, and Central and West Asia, Chen said.
“China could also lower tariffs on U.S. allies,” she added. Chen also warned of negative impacts to China should the U.S. economy enter into recession or if asset bubbles burst, though these should be mitigated by Beijing’s emphasis on the real economy and industrial upgrades.