• US-China trade tensions are rising in connection with alleged Chinese intellectual property theft.
• Capital Economics said the US is considering import tariffs on another $60 billion of Chinese exports.
• If the trade war escalates, CE says China has retaliatory options available.

On paper, China has more to lose from escalating trade tensions with the US — given that it sells more products than it buys in return.

But if the simmering tensions between the two nations escalate into a full-blown trade war, China has a number of hands to play to make life hard for the US.

That’s according to analysts Mark Williams and Chang Liu from Capital Economics, who said China is well placed to enforce alternative measures outside of the usual import taxes.

The duo called it “asymmetric warfare” — actions China could take which the US couldn’t just copy in response.

“This might involve applying pressure on US firms through more stringent regulatory and compliance checks — or simply by instructing Chinese firms to cut orders,” they said.

“The US would struggle to impose similarly arbitrary measures in retaliation.”

Earlier this month, reports emerged of a larger threat to US-China trade relations — the looming war over Chinese intellectual property (IP) theft.

Williams and Liu said the US tariffs reportedly being considered in response to the alleged theft amount to around $US60 billion.

That’s significantly larger than the approximately $US6 billion worth of Chinese exports which would be impacted by the Trump administration’s steel and aluminum tariffs.

This chart shows the prospective impact of both retaliatory measures, as a proportion of total US imports from China in 2017:

It’s still a relatively small cut of the total pie. However, “we suspect that tariffs on this scale would draw a response from Beijing”, the analysts said.

In addition to the alternative measures outlined above, Williams and Liu said China could also impose more traditional tariffs on the three biggest imports from the US — soy beans, cars and aircraft.

“While China has shrugged off the measures introduced so far, another sizeable escalation by the US could trigger a retaliation,” they said.

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