In trade war with the US, China holds a lot more cards than Trump may think − in fact, it might have a winning hand - The Conversation

A strategic analysis published on May 29, 2019, suggested that China possessed significant leverage in its trade dispute with the United States, extending beyond traditional tariff retaliation. The article, titled "In trade war with the US, China holds a lot more cards than Trump may think − in fact, it might have a winning hand," highlighted China's critical role in global supply chains and its capacity to implement non-tariff measures that could severely impact U.S. industries.

One of China's most potent potential retaliatory tools identified was the restriction of rare earth mineral exports. These minerals are indispensable for a wide array of high-tech industries, including the manufacturing of electric vehicles, advanced defense systems, and various consumer electronics. At the time of the article's publication, China supplied approximately 80% of the rare earth imports to the United States. Any disruption to this supply chain could have profound implications for U.S. manufacturers reliant on these critical inputs, forcing them to seek alternative, potentially more expensive or less reliable, sources.

Beyond raw material controls, the analysis also pointed to China's ability to target U.S. companies operating within its borders. This could manifest through various regulatory hurdles, such as increased scrutiny, licensing issues, or even public pressure campaigns that could damage brand reputation and sales. Such actions would directly affect U.S. businesses with significant investments or market presence in China, creating an unpredictable and challenging operating environment. Importers, customs brokers, and trade compliance officers should note that these non-tariff barriers represent a complex and evolving aspect of international trade relations.

In the broader context of the trade dispute, the U.S. had previously imposed tariffs on approximately US$250 billion worth of Chinese goods, to which China had retaliated with tariffs on about US$110 billion worth of U.S. goods. While these tariff figures provide a backdrop to the trade war, the article underscored that China's strategic advantage lay in its ability to inflict economic pain through means other than tariffs. This situation affects all U.S. importers, particularly those with deep supply chain ties to China, and necessitates a comprehensive understanding of potential risks.

Given these potential strategic moves by China, importers and trade compliance professionals should consider the following actions:

• Diversify Supply Chains: Evaluate the feasibility of sourcing critical components and raw materials, especially rare earth minerals, from countries other than China to mitigate supply disruption risks.
• Assess Political and Regulatory Risk: Conduct thorough due diligence on the political and regulatory landscape in China for any U.S. companies with operations or significant market exposure there.
• Monitor Trade Policy Developments: Stay informed about ongoing trade negotiations, policy changes, and any new measures implemented by either the U.S. or Chinese governments that could impact trade flows and compliance requirements.
• Review Contracts: Examine existing contracts with Chinese suppliers for clauses related to force majeure, export restrictions, or other contingencies that could arise from geopolitical tensions.