By Toshiya Tsugami, head of the Tsugami Workshop and expert on contemporary China (interviewer: Kenji Wada)
Compared with the sanctions imposed so far, this third round of U.S. sanctions against China is of a different order of magnitude and will hit the Chinese economy quite hard. For Chinese President Xi Jinping, however, the issue goes beyond the calculation of economic gains and losses and calls into question his authority as the nation’s top leader. Xi likely will not be intimidated by U.S. President Donald Trump’s manner, which can be described as threatening, and will never give in of his own volition.
If the confrontation is protracted, more companies may give up on manufacturing in China. Many companies, though, are too dependent on China, and it would not be easy for them to shift production elsewhere. U.S. companies also are too dependent on China for procurement for them to able to stop importing from China just because tariffs rise. China has that great of a presence.
The Trump administration sees China as a problem, but the core issue is that the U.S. seems to view “imports themselves as evil.” Final assembly may be done in China but much of the materials and components come from Japan, South Korea, and Taiwan. If the scope of the sanctions comes to cover the entire $500 billion worth of goods that the U.S. imports from China, the sanctions would in effect target all Northeast Asia.
Although the United States claims that China is violating its intellectual property rights, Washington has not indicated exactly what actions China should take, so Beijing is agonizing over how to respond. If the confrontation deepens further, the Chinese government may force U.S. companies with operations in China to close down by tightening regulations on them. This is the worst option as it could harm domestic employment in China and accelerate foreign affiliated firms’ turning away from China. The situation, it is feared, may get bogged down.