How Might a

Trade War with

China Unfold?
U.S.– CHINA TRADE WAR PATHWAYS

Trump The dispute remains within

Administration the confines of the WTO’s
initiates dispute multilateral structure and
resolution escalatory retaliation is Trump Administration
Trigger:
process via likely limited for at and Beijing escalate
Section 301
WTO least 18 months retaliation, which
investigation
finds Chinese may lead to serious
wrongdoing economic harm
China responds by imposing
Trump Administration
tariff or non-tariff barriers
imposes unilateral
on key American exports Trump Administration
trade sanctions such
such as agricultural products and Beijing agree that
as the reported
and auto parts, and erects enough economic harm
$60 billion in tariffs
additional barriers to has been done and
on Chinese imports
U.S. technology negotiate a face-saving
settlement

CHINESE OPTIONS FOR NON-TARIFF RETALIATION

Chinese Retaliation

Restrict Market Access Target Imports

Education Financial Services Transportation Agriculture

Withhold Exclude Manufac-

Withdraw Local Pollution Quarantine Customs
Future from FTZ turing
Partnerships Standards Regulations Restrictions
Licensing Pilots Standards

Despite being a member of the WTO, China is experienced at imposing non-tariff barriers to trade, so will have
a wide suite of mechanisms to block U.S. imports as well as discriminate against U.S. services companies.
Previous examples of market/import restrictions such as action against Lotte over THAAD deployments, were
never officially linked together by the government.
Despite this range of actions, China will be careful not to make the fight a ‘personal one’ between Trump and Xi.

© 2018 APCO Worldwide, Inc. All rights reserved. apcoworldwide.com

THE CHINESE PERSPECTIVE AND TOOLS
Approach 1:
Target U.S. agricultural
produce
• Has the potential to
impact many U.S.
states and the rural vote
• China has resilience in
terms of food security
and can diversity its
sourcing
• If needed, China can
also target transpor-
tation equipment and
electronics. But this
can also hurt China as
it needs aircraft, and
exports many electronic
products to the U.S.
Approach 2: Chinese Government Position*
Restrict market access
for U.S. companies • Strongly prefers not to engage in trade war
in services sector • Wants to keep engagement close in order to
resolve issues through dialogue
• Create uneven playing • If there is a trade war, it will want to avoid
field for U.S. companies escalation as much as possible, but it will also
in the high-value fight to win
services sector, such
as financial services, • Rhetoric not yet nationalistic and anti-American,
suggesting the government does not yet want to
by restricting access,
and allowing other mobilize popular anger
• Wish to avoid retaliation in ways that will also hurt
competitors to gain a
head start Chinese interests
• Does not impact • Seek alignment by other parties hurt by Trump’s
immediate quality of protectionism, such as the EU
life to citizens by not
preventing needed *as expressed by the government, key opinion leaders,
imports and academics from government affiliated research
institutions

POTENTIAL SCENARIOS &

ESCALATION/DE-ESCALATION INDICATORS

Minimal Impact: Medium Impact: High Impact:

Face-Saving Short Term Economic Damage Severe Economic Disruptions
Resolution
• Retaliatory tariffs • Substantial tariffs leading to severe
• Unilateral U.S. • China offers concessions; disruption of both nations’ manufacturing
actions United States rebuffs sectors
• China offers face- • Ongoing dispute leads to • Addition of ideological and nationalistic
saving solution unemployment, protests, and dimensions leads to extreme reactions from
that make good knock-on effects impacting leaderships of both nations
headlines for other trade relationships • Escalation of economic retaliation leads to
Trump • Pressure on both governments disruption to global trade and markets
• Preserves most leads to eventual resolution • Both sides find it difficult to back down in
of the status quo —concessions made by both front of their own people
at small cost to sides
China

• The escalation pathways Escalation Indicators De-escalation Indicators

each government
pursues will dictate
which scenario plays out;
neither side will want to
look weak
• Certain indicators can
be monitored in order
to assess the likelihood
of escalation or
de-escalation
• Entanglement of territorial
issues, such as the United
States using Taiwan, South
China Sea, and East China
Sea as bargaining chips
• Trump outbursts
• Frequent meetings between senior
government ministers to discuss
solutions, giving Beijing a chance to
provide potentially face saving solutions
• Political backlash in U.S. due to higher
prices as a consequence of tariffs
disrupting the global supply chain, and
potential job losses forcing the U.S. to
reexamine the cost

© 2018 APCO Worldwide, Inc. All rights reserved. apcoworldwide.com