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Alibaba shows how China can beat Trump, US in tariff fight, trade war

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donald trump jack ma
President
Donald Trump and Jack Ma, Chairman of Alibaba
Group

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  • Alibaba,
    the Chinese e-commerce giant, said the company is not concerned
    with the growing trade
    war
    between China
    and the US
    .
  • Alibaba said the Chinese government would help the
    country’s customers find other sources for the US goods subject
    to tariffs which would reduce China’s reliance on the
    US.
  • According to data, this shift away from US products is
    already happening while Chinese exports to the US are staying
    steady.

Chinese retail giant Alibaba says it isn’t worried about
President
Donald Trump’s trade war,
and the company’s comments
highlight how China could gain the upper hand in the conflict.

Joseph Tsai, Alibaba’s vice chairman, told analysts during the
company’s quarterly earnings call that the recent tariffs imposed
by the US and China should not be a major detriment to the
e-commerce giant’s business — or the Chinese economy at large.

Part of the concern with a trade war is that imposing tariffs on
goods coming from the US would drive up costs for those goods —
leading to Chinese companies and consumers paying more.

For instance,
Chinese farmers who rely on imports
of US soybeans to feed
their livestock could see a dramatic price increase after the
tariffs. The same could apply for other goods, like US gas or
food items.

But Tsai said the hit to Chinese consumers is likely to be
softened by a switch to non-US goods — whether from China or
another country — facilitated by the government.

“This coming November, China will hold the world’s largest import
exhibition in Shanghai that will showcase products from all over
the world,” Tsai said. “If US goods become too expensive due to
tariffs, Chinese consumers can shift to domestic producers or
imports from other parts of the world.”

Tsai said the Chinese government could ease the transition by
providing support to offset increased costs.

“We believe that Chinese government policy will continue to
support imports into China to satisfy the rising demand of
Chinese consumers,” he said.

Tsai’s comments underscore a growing advantage for China as it
tries to hold out in its trade war with Trump: The country’s
government is making easy a switch away from US-made goods for
Chinese consumers and businesses.

Xiaojia Zhi and Helen Qiao, China economists at Bank of
America Merrill Lynch, said the shift away from US imports is
already beginning.

“We believe the Chinese government has more influence on how much
and where to buy its imports than the US government’s influence
on its own importers,” the economists wrote in a note to clients.
“In other words, China could shift its imports from the US to
purchases from other markets relatively more easily than the US
administration pushing businesses to other alternative countries
for outsourcing or imports.”


Screen Shot 2018 08 23 at 3.13.45 PMBank of America Merrill Lynch

Shifting Chinese consumption is easier since the country’s
economy gives the government more power to influence companies’
behaviors and subsidize the shift, an option the US does not
have.

At the same time, the US is doing little to wean itself off
Chinese goods:

  • China accounted for 19.9% of all imports to the US in the
    first six months of the year, compared to an even 20% in 2017.
  • Additionally, import growth from China actually accelerated
    in 2018.
  • Chinese imports grew by 8.6% in the first six months of the
    year compared to 2017.
  • Last year, Chinese imports grew by 8.4% in the first six
    months compared to 2016.

The Chinese data shows similar stats, with export growth to the
US staying steady.

“China’s export growth to the US seemed to be pretty resilient,
and held up in line with the overall trend,” Zhi and Qiao wrote.
“In July, China’s export growth to the US was 11.2% yoy, slightly
below its total export growth of 12.2%.”

The changes come amid the ever-escalating trade war between the
US and China. The US’s first tariffs on specific Chinese goods
came on July 6, with $34 billion worth of imports being hit with
a 25% duty. China immediately responded in kind, kicking off the
trade war.

Since then, the US and China have hit each other with another
round of tariffs — this time on $16 billion worth of goods. Trump
also threatened to slap another $200 billion worth of Chinese
goods with tariffs as soon as September. 

Chinese consumers were less likely to see disruption.

China
accounts for 21%
of the US’s imports, making it the largest
source of international goods to the US. China, on the other
hand, only sources
9.9% of its imports
from the US, which is nearly equal to the
percentage China gets from Japan and South Korea.

Still, many other considerations could work against China:
political stomach for a prolonged trade fight, internal
consumption, credit woes, and more. But looking at the trade
figures, China appears to be holding a strong position.

Many Chinese officials do not expect the country to shift back to
US supply, even if the two countries resolve their battle.

Many countries have the willingness and they totally have
the capacity to take over the market share the US is enjoying in
China,” an official
told Chinese outlet Xinhua
. “If other countries become
reliable suppliers for China, it will be very difficult for the
US to regain the market.”

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