Donald Trump tariffs would hurt US defence sector, warns Beijing adviser

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The US will bear the brunt of any attempt by president-elect Donald Trump to decouple economically from China, a senior Beijing adviser has warned, citing the reliance on low-cost Chinese parts of American manufacturers including the defence industry.

Trump’s plan to raise tariffs to 60 per cent would halve US GDP growth and Chinese suppliers would seek to evade the levies by rerouting products through other countries, said Ding Yifan, a researcher at a think-tank affiliated with China’s cabinet, the State Council.

The blunt warning from an influential government adviser was among the clearest signals yet of Chinese concern about Trump’s tariff threats and the prospect of escalating trade tensions between the two countries.

“If those military enterprises do not have supply from China, they will not be able to continue with their production,” Ding, an expert at the State Council’s Development Research Center, told a government-promoted briefing for international media.

“If [US leaders] really implement the policies for trade friction or a confrontation, it will have severe consequences,” Ding said.

Beijing leaders have so far largely been restrained in comments on Trump’s victory, although Chinese President Xi Jinping warned US counterpart Joe Biden at the Apec summit in Peru at the weekend that Washington should not overstep Beijing’s “red lines”.

These lines included China’s right to economic development — a reference to US restrictions on high-technology exports to China. But Xi said he would work with Trump and while he pushed back on trade restrictions, the tone of the meeting was constructive.

Chinese officials were fiercely outspoken during Trump’s first term, in an approach that became known as “Wolf Warrior” diplomacy, but analysts believe this time Beijing is taking a wait-and-see approach until the president-elect’s new administration comes into office.

As evidence of US reliance on Chinese manufacturers, Ding cited comments at a conference in September where Greg Hayes, chief executive of RTX, formerly Raytheon, said the US aerospace and weapons group had 2,000 suppliers in China.

Hayes told the Financial Times last year that western companies could “de-risk but not decouple” from China and that it would take them many years to find alternative suppliers.

With its economy suffering from a prolonged property downturn, China needs export markets to absorb production from its factories, which are suffering from weak domestic demand.

Ding was accompanied at the briefing on Monday by two other government-affiliated experts, including Wu Sa, an adviser from a think-tank under China’s powerful planning body, the National Development and Reform Commission.

Ding portrayed Trump’s efforts to increase tariffs as more of a threat to the US economy than to China’s. The US not only imported finished consumer goods from China, but also a large portion of intermediate products that were incorporated by American factories into their goods, he said.

“Downstream American companies will not be able to find substitute products in a very short period of time if Chinese companies are not able to provide them with the products,” Ding said. “As a result, there will be greater chaos in American economy.”

He also cited US studies as saying American consumers paid for the bulk of the cost of the previous round of tariffs. The Peterson Institute for International Economics has warned consumers usually foot the bill for such measures.

“If they double the tariff, Chinese enterprises have their own ways to evade this, to avoid the risks. We can transfer our trade to other countries,” he said. “But the ultimate market would not change, it would not [reduce] the trade deficit of the US and this is only an illusion of the Trump administration.”

While Ding claimed the impact on China would be “marginal”, economists have warned that the country’s GDP would also take a sizeable hit from 60 per cent tariffs.

Yang Zhou, an economist at Shanghai’s Fudan University, estimated in a paper last year that the early years of the trade war, which started in 2018, cost China 0.29 per cent of GDP in aggregate real income against 0.08 per cent of GDP for the US.