The trade deficit that exists between the US and China only includes physical products that are being traded but doesn't include services like finance, IT, banking, insurance, tourism, etc.
The real trade deficit is only about US$100++ billion between the 2 countries after including the services. Therefore, China is likely to target the US services when all the Chinese goods are being taxed and this will hurt the US very badly since the US is a service-oriented country.
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China only uses a minuscule amount of US services. The obvious methods will be yuan depreciation, interest rate cuts & other monetary easing, shadow stimulus especially to smaller banks & SMEs, some overt stimulus but not as much as in 2008 or 2016, and tough life for US companies operating in China including delays or rejections of legal/court cases, business licenses, hiring approvals, audit sign offs, patents, antitrust applications etc etc LOL.
Anyway, these 2-3 months will be very good times to load up on stocks & commodities. Best BTFD moments in recent years. Late 2019 & 2020 will be another 1999 again.
You are wrong about the service part. Why?
The US has a trade surplus with China in services. This is the primary reason why the US doesn't include US services in the trade dispute.
In 2018, the US exported US$72B of services to China (includes HK) in the official figure but the real figure is bigger than that because many services consumed by the Chinese are not calculated by the US. This is a common practice used by the US for its own political agenda. For example, military sales to SG is not included in the US trade deficit between SG & US and this gives the US the bargaining power in a trade negotiation with SG.
Anyway, my main point of this post is focused on how China will retaliate against the US to make the US feel the pain and not how the Chinese will manage its economy during the trade war.
A 25% tariff on US$60b goods can cause dow jones to fall more than 600 points in a day.
How many points will the dow jones drop when China imposes a 25% tariff on US$72b services?
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