By Minxin Pei
As Donald Trump is sworn into office this week, among many of the possible disruptive initiatives his administration may launch is a trade war with China. Some may still harbor hopes that pragmatists in his administration could counterbalance the anti-trade China hawks, but former Exxon CEO Rex Tillerson, Trump’s pick for the Secretary of State, should dispel such illusions.
During his confirmation hearings last week, Tillerson took a hardline on China over its trade practices, expansionist moves in the South China Sea, and unwillingness to punish North Korea for its nuclear and missile programs even as he prevaricated on Russia. Since Tillerson would play a key role in determining policy toward Beijing if he is confirmed, his remarks suggest that he would not stand in the way if Trump wants to launch a costly trade war with China.
Trump knows that the U.S. is in a stronger position than China, since America is much less dependent on trade than China (total foreign trade is equivalent of 28% of GDP for the U.S. in 2015 while it is 41% of GDP for China). In addition, China sells far more to the U.S. than the other way around. In 2015, U.S. exports to China totaled $116 billion while Chinese exports to the U.S. were more than triple that at $483 billion. Most importantly, with full employment, low inflation, and a healthy financial system, the U.S. economy is at its strongest since the financial crisis of 2008. The Chinese economy, by comparison, is weighed down by a mountain of bad debt, overcapacity, and capital flight.
To be sure, we have no idea what Trump might actually do. But he would be wrong to assume that Chinese leaders will not push back or that their actions would not amount to much. Politically, China’s President Xi Jinping, has portrayed himself, just like Trump, as a strong leader whose mission is to make China great again. He cannot afford to appear to be a weakling. Economically, China may be highly vulnerable and will suffer worse consequences than the U.S. in a trade war, but as the world’s second-largest economy, it can still deliver a powerful counter punch.