Industries Will Leave China if Trade War Is Prolonged

Simone Gao: What is China’s economic situation really like? Can it tide China over in the ongoing trade war?

Wen Zhao: If the trade war lasts only one or two years, Chinese leaders may have been prepared for that. But a prolonged trade war means irreparable damage to China’s economy. Once export-oriented businesses close down in great numbers and unemployment flares up, China’s economy and social security will worsen drastically. Since China lacks strong enough domestic consumption to offset its huge exports to the U.S.,  any possible recession will remain long and hard to get over. Also, the longer war is more than a U.S.-China issue, which will further global industry transfer. More businesses—including local ones—will prefer less investment in China, bypass tariffs, and transfer capacity elsewhere. Once these firms target the American market, they’ll consider industry transfer against tariff wars. If the gap widens while the U.S. market thrives and China’s economy slows down, a stubborn trend of industry transfer will be seen worldwide. Even if the U.S.-China tensions are eased, China’s own problems alone would cause manufacturing capacity transfer and capital outflow—the war only quickens the process, hitting Chinese jobs harder. In late October the Chinese Communist Party (CCP) set goals at securing jobs, foreign capital, and trade at the politburo meeting—it’s anxious to relax tensions and avoid breaking down too soon. A likely result will be that the CCP would make hollow concessions, still, a long way to go before a true deal is stricken.