China to retaliate if Trump boosts tariff, says ex-PBOC official

BEIJING - China will fight back if US President-elect Donald Trump follows through on his promise to impose a 60 per cent tariff on Chinese imports, according to Mr Zhu Min, a former top official at the Chinese central bank. 

“If Trump and the administration really levy a 60 per cent tariff on China, I think China will retaliate” and bring the case to the World Trade Organisation, said Mr Zhu, a former deputy governor at the People’s Bank of China, in an interview on Bloomberg Television on Nov 15. “There are many things they can do.” 

Mr Zhu didn’t specify the potential retaliation measures. But he said the tariffs would impact the Chinese currency, which, he said, is determined by market forces such as trade and capital flows. The tariffs will also affect China’s demand for US Treasuries, he added. China is the second-largest foreign creditor to the US government after Japan, holding about US$775 billion (S$1.04 trillion) in Treasuries.

Tariffs “will affect the exchange rate, it will affect China’s capital flow, and also will affect how much China will buy US Treasury bills”, said Mr Zhu, who is now chairman of the National Institute of Financial Research at Tsinghua University. 

Trump imposed tariffs of up to 25 per cent on more than US$300 billion of Chinese imports while he was in the White House – triggering retaliation from Beijing – and President Joe Biden has largely kept them in place. On the campaign trail, Trump threatened to increase the levies on Chinese goods to as high as 60 per cent, a level that Bloomberg Economics said would decimate trade between the world’s two biggest economies.

If the trade war were to escalate, “it would be tough things” for both countries, said Mr Zhu, who also served as the deputy managing director at the International Monetary Fund. “It would be nice if both sides can sit down, talk and cut a deal because, economically, both sides really complement each other.” 

Mr Zhu pointed out that China’s exports globally have thrived in recent years, surging to almost US$4 trillion, from US$2.5 trillion in 2019. Even so, Mr Zhu said Beijing has made a “strategic shift” to reduce its dependence on trade and to boost domestic demand, a process he acknowledged will “take some time”.

When asked about whether the stimulus Beijing launched since late September is enough to end the deflation China is suffering, Mr Zhu largely deflected the question. 

The “short-term goal” for Beijing is to stabilise the housing market, reduce the debt burden of local governments and boost consumer confidence, he said. BLOOMBERG