I respectfully think that Politico writers Adam Behsudi and Doug Palmer are wrong in their warning that a Chinese boycott of U.S. goods and services could win a trade war with the United States.
The authors quote U.S. national foreign trade council chief, Rufus Yerxa who warns that China could respond to new U.S. tariffs by saying “we can easily take this U.S. company out here because we’ve got a Japanese company, or a Korean company, or a European company ready to come in and do the same kind of business here.”
Yerxa is wrong. While Politico rightly points out that certain industries such as U.S. car manufacturers are particularly vulnerable to a consumer boycott, Chinese consumers cannot easily replace U.S. exports without incurring significant additional cost and major disruption to U.S. reliant supply lines.
Consider this chart from Statista, which provides data from the Congressional Research Service.
[Also read: Peter Navarro: Tariffs are a ‘shield’ against Chinese military aggression]
Yes, motor vehicles provide many U.S. exports to China. But the chart also shows that the U.S.-China export base is focused on an abundance of other high-quality products such as aerospace parts, semiconductors and electrical components, measurement devices, and medicines. The products, the intellectual property of which China has been thus far unable to steal, cannot easily be replaced by other foreign markets. And Beijing knows it. The Chinese government also knows that its nearly 400 percent 2016-2017 increase in U.S. energy imports also reflects its increasing dependence on the U.S. market.
That reality aside, Politico also neglects the brand power that drives individually-focused U.S. consumer goods exports to China such as Apple products and Starbucks coffees. It references Deborah Elms, founder of the Asian Trade Centre who worries, “What happens if Chinese consumers start boycotting American products? Stop drinking Starbucks? Wanting iPhones?”
They won’t.
While it’s true that cheaper Chinese copycats of these products (I wonder where the intellectual property came from …) are marginally undercutting U.S. companies, most major U.S. brands retain great power the Chinese marketplace. Starbucks sales in China face a disappointing start to the year, but others like Microsoft are employing their boutique software to fill market gaps. And as the South China Morning Post notes, Apple has seen “an 11 percent increase in its combined fiscal first-quarter revenue from mainland China, Hong Kong and Taiwan to $17.9 billion, up from $16.2 billion in the same period a year ago.”
If U.S. companies are able to retain their high-value market dominance — or at least a significant degree of dominance — China’s population will have little corporate or individual interest in using these U.S. exports as pawns in a trade war. The Chinese government could of course ban these imports, but it would incur major pain and anger by doing so. That pain would not sit well with China’s overriding interest in preventing a democratic awakening.
In contrast, China largely exports cheap, low-value goods to the U.S. that could be offset by slightly more expensive, low-value goods from other Indo-Pacific nations (action that would also boost U.S. geostrategic influence). While a trade war with China would be bad for U.S. consumers in raising the marginal cost of basic goods (clothing etc.), China does not hold all the cards here. In its need to move to the next level of economic development and overcome low-value goods export competition, China has become ever more reliant on U.S. high value exports.
As I say, Politico is wrong. As long as we’re willing to push back against Chinese intellectual property theft, we should have confidence in the U.S. economy.
