Economics: Trump`s Trade War - What Doesn`t Kill China, Will Make It Stronger

(Drivebycuriosity) -  Donald Trump declared a trade war against China and threatens tariffs on all $500 billion of Chinese imports (reuters). The US President is overestimating himself and his power. He cannot bring this huge country on her knees. China will just shrug and might get even stronger. This reminds me of a Friedrich Nietzsche, who said: “That which does not kill us, makes us stronger". The German philosopher may have referred to the human immunity system which is getting stronger after surviving a challenge.

China is already changing from an industrial country - which relies on exports - into a modern economy like the US which is dominated by services and focuses mostly on the domestic market. For years imports & retail sales have been growing faster than exports & industrial production. While China`s economy (BNP) is  growing 6-7% annually, the retail sales are climbing 9%. Therefore a growing part of the national production is consumed in China, which reduces the country´s dependence from global markets and from the USA. Trump`s trade war will only accelerate the transformation process.

Since the financial crisis 2008 exports have made no significant contribution to Chinese growth (chart below). Rising import demand offsets any gain through exports. What drive Chinese growth is Chinese demand for consumption and investment (adamtooze). The fast rising domestic Chinese domestic economy (consume, investments in infrastructure etc.) will replace shrinking exports to the USA.

China proved already in the recession 2008/09 that it can weather a sharp drop in export demand. Even though exports to the USA & Europe dropped sharply thanks to the economic crisis in the Western World, China could avoid a recession (falling GDP) by stimulating domestic demand (consume, investments). Since then China got much stronger with a much bigger domestic economy.

 Source: adamtooze.com


In 2017 China`s whole export to the rest of the world shrunk already below 20% of the the GDP (chart below). So Trump´s tax hikes will impair only a small part of the Chinese GDP. Beijing can easily compensate a shrinking US demand (as a result of Trump´s tax hikes) by stimulating domestic consume & investments - as they did during the 2008 crisis in the US. China´s government is already responding to Trump´s tariffs and announced tax cuts and new investments into infrastructure.

 Source: worldbank


Yes, some Chinese corporations will suffer, if they lose customers in the US. But this will force them, to find more customers in their fast growing home market. They will have to get more efficient and they need to cut their costs and offer better products. The Chinese customers will benefit when China`s corporations focus more on their domestic markets by cheaper products and more quality.