What pressure points can the US use against China? Via Investing.com

Investing.com — According to BCA Research’s GeoMacro Strategy service, the U.S. has two key points of leverage it can use against China.

First, the US consumer market is the largest globally, and although China has diversified its exports, the US remains a critical market, BCA said in a recent note.

The report suggests that Chinese policymakers may be hard-pressed to resist the call to boost weak domestic demand by relying more on American consumers, especially as they are reluctant to implement large-scale fiscal stimulus.

The US is now geopolitically and politically ready to negotiate with China on its own terms, which may explain why it may allow China continued access to its market.

The second pressure point is China’s current account balance, which is heading towards a deficit.

China’s surplus, which has been supported by a pandemic-related export surge and restrictions on international travel, is unlikely to be sustained, especially if overseas tourism returns to pre-pandemic levels.

“China already flirted with a CA deficit in 2018, when it almost went into deficit,” the BCA notes.

“Then it regained a robust surplus, thanks to the pandemic-induced export breakdown and the zero-Covid-19 policy that made it difficult to travel abroad.” As of 2023, the surplus has stabilized at about $253 billion.

For the US, reducing China’s current account surplus is seen as a national security priority.

While the Trump administration has emphasized the trade imbalance in goods, the US holds a stronger position in services, making it crucial for future trade talks to focus on opening the Chinese market to US service exports.

At this point, the US appears poised to restrict China’s access to its domestic market, and could use that access both as “a carrot, not just a stick,” the BCA notes.

Republican candidate Donald Trump, in his bid for the presidency in November, threatened to raise tariffs on Chinese exports from the current 10 percent to 60 percent if he won a second term.

As Trump runs neck-and-neck with his Democratic opponent Kamala Harris in key states, Beijing faces the looming possibility of a second major trade war.