One quote from Chinese giant Alibaba shows how Trump's trade war could backfire

Drew Angerer/Getty ImagesPresident Donald Trump with Jack Ma, the chairman of Alibaba Group.

  • Alibaba, the Chinese e-commerce giant, says it is not concerned with the growing trade war between China and the US.
  • During an earnings call, the company said the Chinese government would help the country’s customers find other sources for the US goods subject to tariffs that would reduce China’s reliance on the US.
  • Data suggests this shift away from US products is already happening even as Chinese exports to the US are staying steady.

The 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 drives 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 imposing of tariffs. The same could apply for other goods, like US gas or food items.

But Tsai said the hit to Chinese consumers was 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.

Xiaojia Zhi and Helen Qiao, China economists at Bank of America Merrill Lynch, said the shift was 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’ behaviours and subsidise 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 with 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 with 2017.
  • Last year, Chinese imports grew by 8.4% in the first six months compared with 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. After including China in a broader wave of steel and aluminium tariffs, the US first targeted Chinese goods specifically on July 6, when it hit $US34 billion worth of imports with 25% duties. China immediately responded in kind.

The US and China have since hit each other with another round of tariffs – this time on $US16 billion worth of goods each. Trump also threatened to slap tariffs on another $US200 billion worth of Chinese goods as soon as September.

Chinese consumers are less likely to see disruption.

China accounts for 21% of the US’s imports, making it the largest source of international goods sent to the US. China, on the other hand, sources just 9.9% of its imports from the US, an amount nearly equal to the percentages China gets from Japan and South Korea.

Still, many other considerations could work against China, including political stomach for a prolonged trade fight, internal consumption, and credit woes. But looking solely 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 the 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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