China could try to use its leverage on geopolitical issues, such as the Russia-Ukraine conflict, if the trade war with the US expanded further, Goldman Sachs analysts said in a note.
“In the event of further escalation of trade tensions between the US and China, we think manufacturing supply chains (e.g., export controls of critical minerals) and geopolitical issues (e.g., Russia-Ukraine war) are possible sources of leverage that the Chinese policymakers could employ,” the Goldman analysts led by Andrew Tilton said.
These tools could be used in addition to those deployed during the last trade war in 2018-19 when China imposed retaliatory tariffs on the US and allowed some exchange rate depreciation.
The analysts added the additional 10 per cent tariff announced by the US over the weekend targeted consumer goods more than they had expected by also including small, “de minimis” shipments that were previously tariff-free if worth under $800.
About 60 per cent of such packages arriving daily in the US between 2018 and 2021 came from China, they noted.
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