US targets China’s high-tech sector; China targets US exporter revenues

April 6, 2018

HONG KONG - The US-China trade war is escalating faster than expected but the real question is what the ultimate targets are for the two contenders, says the French banking group, Nataxis, in a research note.

It sees a barrage of arrows shooting from both sides – but at different targets.

The US is not really targetting the bilateral trade deficit with China. It is trying to constrain China from climbing the technological ladder, Natixis says.

China is trying to minimise the self-inflicted cost of retaliation by focussing, to the extent possible, on lower-end products.

“In other words, both the US and China are targetting the weakest point for each other.

“While the US is targetting China’s future technological capacity, China is responding by targetting US exporters’ present revenues.

“Such immediate response with instantaneous consequences on US exporters can well explain Trump’s immediate response with an even larger package of import tariffs.

“It is hard to think of a way to negotiate in such circumstances.”

The research note finds that the US tariff package, estimated by the US administration to reach US$60 billion, appears to be much smaller based on a bottom-up estimation of the export value of the 1,333 products covered in the list.

More importantly, 84% of the total value of the products is high-end exports while the low-end ones only constitute 3%.

“As for China’s list of targetted imports from the US (106 in total), our estimated value is almost the same as that announced by China (US$50 billion). However, 50% of the products on China’s list are at the lower end of the value chain.”  

Natixis says: “The sheer size of China’s retaliation, in terms of the share of total imports from the US, is understandable as the US is hitting China where it hurts the most.

“This sore point is technological modernisation as officially enshrined in China Manufacturing 2025.” (ATI).