What Pressure Points Can the US Leverage Against China?

According to BCA Research’s GeoMacro Strategy service, the United States has two primary leverage points it can utilize against China.

Firstly, the U.S. consumer market stands as the largest in the world. Despite China’s efforts to diversify its exports, the U.S. remains a vital market, as highlighted in a recent report by BCA. The analysis indicates that Chinese policymakers may find it challenging to resist the temptation to stimulate weak domestic demand by leaning more on American consumers, particularly given their hesitance to implement extensive fiscal stimulus measures.

Geopolitically and politically, the U.S. is now in a position to negotiate with China on its own terms, which might clarify why it could permit China continued access to its market.

The second point of pressure lies in China’s current account balance, which appears to be trending toward a deficit. China had previously experienced a surplus, bolstered by a spike in pandemic-related exports and international travel restrictions. However, this surplus is unlikely to be maintained, especially if overseas tourism levels return to what they were before the pandemic.

BCA notes that China nearly faced a current account deficit back in 2018 and managed to rebuild a strong surplus due to pandemic-induced export booms and strict travel policies. However, since 2023, the surplus has stabilized at approximately $253 billion.

For the U.S., decreasing China’s current account surplus is considered a national security issue. While the previous administration focused on trade imbalances in goods, the U.S. holds a stronger negotiating position in services. Thus, it is vital for future trade discussions to concentrate on opening the Chinese market to U.S. service exports.

Currently, the U.S. seems poised to limit China’s access to its domestic market. This access may be utilized as a negotiation tool, acting as both an incentive and a penalty. Republican nominee Donald Trump has indicated that if he were to win the presidency again, he would consider raising tariffs on Chinese exports from the existing 10% to as high as 60%.

As Trump competes closely with Democratic opponent Kamala Harris in crucial swing states, the possibility of a significant trade conflict with Beijing looms on the horizon.