The trade tensions between the US and China could escalate dramatically if former President Donald Trump’s proposed tariffs on Chinese goods are implemented. Stephen Roach, a renowned Yale economist, warns that China has numerous avenues to retaliate effectively, potentially harming the US economy significantly.
Roach points out the critical role that China plays in the global supply chain, especially concerning rare earth metals vital to US industries. These materials are essential for manufacturing high-tech devices including computer chips and solar panels. Should China decide to limit its exports of these resources, it could severely disrupt US manufacturing sectors that rely on them.
Moreover, China possesses substantial holdings of US Treasury securities, estimated at around $1 trillion. This positions China as a significant player in the US debt market. Roach highlights the potential danger if China chooses to either halt its purchases of US Treasuries or to sell off its massive holdings. Such actions could destabilize the US financial markets by increasing interest rates and exacerbating the federal deficit, leading to a ripple effect across global markets.
Roach emphasizes that the US economy depends considerably on China, not only for manufactured goods but also for financial capital. He argues that Trump’s ‘America First’ economic policies underestimate this dependency and the retaliatory power China holds. The ongoing geopolitical dynamics between the two nations are indicative of a larger narrative where mutual dependency is often overshadowed by political rhetoric.
The recent response from Beijing to a semiconductor export ban by Washington serves as a cautionary tale. China promptly restricted US access to crucial minerals such as graphite, illustrating its capacity and willingness to retaliate swiftly against US policies.
Stephen Roach further argues that dismissing China’s potential actions as implausible is risky. While it might seem unlikely for China to trigger a financial crisis, doing so remains within the realm of possibility. This understanding is crucial for crafting policies that consider the full scope of consequences in such adversarial economic engagements.
In the context of rising trade tensions, the US must carefully consider the potential repercussions of its economic policies towards China. The strategies employed by both nations will have far-reaching impacts not only on bilateral relations but also on global economic stability. Recognizing the interconnectedness of the US and Chinese economies is vital in navigating the complexities of modern international trade.
Source: Businessinsider
