One quote from Chinese giant Alibaba showed how Trump's trade war could backfire
- 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."
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."