Investing.com — According to BCA Research’s GeoMacro Strategy service, there are two main points of leverage the U.S. can use against China.
First, the US consumer market is the largest globally, and while China is diversifying its exports, the US remains a critical market, BCA said in a recent note.
Chinese policymakers may find it hard to resist the temptation to shore up weak domestic demand by relying more on American consumers, especially as they shy away from large-scale fiscal stimulus, the report said.
The US is now geopolitically and politically ready to negotiate with China on its own terms, which may explain why it may allow China to maintain access to its market.
The second pressure point is China’s current account (CA) balance, which is heading into deficit.
Bolstered by pandemic-related increased restrictions on exports and international travel, China’s surplus is unlikely to be sustainable, especially if overseas tourism returns to pre-pandemic levels.
“China has already flirted with a CA deficit in 2018, when it almost slipped into deficit,” BCA notes.
“It then ran a strong surplus thanks to a pandemic-induced export glut and a zero-Covid-19 policy that made travel abroad difficult.” Since 2023, the surplus has stabilized at about $253 billion.
Reducing China’s current account surplus is considered a national security priority for the United States.
While the Trump administration has highlighted trade imbalances in goods, the US has a stronger position in services, making it imperative that future trade negotiations focus on opening the Chinese market to US service exports.
The BCA notes that the U.S. now appears poised to restrict China’s access to its domestic market and can use that access as both a “carrot and a stick.”
Republican candidate Donald Trump threatened to raise tariffs on Chinese exports from the current 10% to 60% if he is elected for a second term.
Trump is facing the looming prospect of a second major trade war with Beijing, losing to Democratic rival Kamala Harris in key states.
