| There are no winners in a trade war. But even as everyone loses, some on the tariff battlefield have more leverage than others. And in this trade war launched by President Donald Trump and the US, it’s becoming increasingly clear that other countries may have more leverage than Trump or his aides think. Especially when you start paying attention to how they are retaliating or talking about retaliation. Bloomberg Tracker: Every Trump Tariff and Its Economic Effect The traditional consensus holds that countries like the US with large trade deficits wield more power in a conflict than the surplus nations whose exports fuel that imbalance. For a simple reason: If I have a large deficit with you, anything I do to reduce my purchases of what you sell me will hurt you more economically than me. Nouriel Roubini, chief executive officer of Roubini Macro Associates, says China has a lot of leverage in its tariffs war with US President Donald Trump. “You can go after Tesla. You can go after Apple. You can go after hundreds of dollars of US economic interests and FDI in China,” Roubini says on Bloomberg Television.
But what if I really want or need what you sell me? And what if what you send to me is actually made by my companies? What if when I stop buying what you sell me I’m really hurting myself? That last scenario is particularly real when it comes to China, on which the US is dependent for many things. Which is for many hawks in Washington the very reason to have a trade war. Read More: Apple, Nvidia Score Relief From US Tariffs With Exemptions Just how complex that dependence makes fighting an economic conflict was in evidence over the weekend after the Trump administration exempted smartphones, laptops and TVs from its new tariffs. One reason for the move was clear. Apple and other companies dependent on production in China faced an existential crisis in Trump’s 145% levies on goods from China. Inflation Fears If anything, though, the pullback was aimed at assuaging everyday Americans. In a consumer-driven US economy it turns out imposing a tax on things consumers like has consequences. The story remains tangled. Trump and his economic team insisted Sunday that all the exempted tech products would eventually be subject to other new impending tariffs on semiconductors. In the short-term, though, anyone in America who wants a new Chinese-made TV or smartphone got a reprieve, as did Apple. This past weekend speaks to the often ignored power of American consumers, who also have a vote at the ballot box, in this trade war and how it weakens Trump’s own negotiating position. Read More: Trump Floats Possible Exceptions to 10% Baseline Tariff But the leverage and tools to respond that China has extend beyond that. In a new paper, the China experts Evan Medeiros and Andrew Polk document a whole new Chinese toolkit of “precision-guided economic munitions.” They include export controls on vital raw ingredients, antitrust investigations and cybersecurity reviews of foreign firms or the placing of companies on an “unreliable entity” list that makes doing business in China difficult. “In these early days of the second Trump administration, all indications are that China will rely even more heavily on its new economic weapons,” Medeiros and Cox write. The purpose being “to build negotiating leverage by inflicting highly targeted damage to a small number of high-profile US firms and industries.” Digital Trade Targets It’s not just China. In an interview with the Financial Times last week, European Commission President Ursula von der Leyen said that if negotiations with Trump fail, the EU could move beyond simple tariff retaliations by targeting US services exports and online ad sales. But China remains unique. While von der Leyen and others are staking a lot on negotiations with Trump, the response from Beijing has so far been not only to retaliate with tariffs of its own but to ignore US offers to talk. The power of that approach was evident in two ways over the weekend. The first came in the reaction to the weekend tech exemptions Sunday from the Chinese Ministry of Commerce. It dismissively dubbed them a “small step” by the US taken “toward correcting its wrongful action.” QuickTake: Is Trump’s Use of Emergency Law for Tariffs Legal The second came in the emerging reality that the tone of China’s responses is inspiring satire in the US. The comedy show Saturday Night Live over the weekend included a skit featuring a mock Chinese trade minister haughtily dismissing the idea of a Trump negotiation. “What is there even to negotiate? Today Trump announced he was walking back on smartphones and computers,” the fake minister said. “You can’t live without our technology. But I think we’ll survive without your Newman’s Own salad dressing.” Sometimes satire rings true. Leverage comes in all forms in a trade war. China’s is becoming increasingly clear. —Shawn Donnan in Washington Bloomberg’s tariff tracker follows all the twists and turns of global trade wars. Click here for more of Bloomberg.com’s most-read stories about trade, supply chains and shipping. | 
