LAUSR

Abstract Donald Trump’s trade war with China does not make economic sense, but he does not face much domestic opposition to this trade war. Moreover, it is a part of a broader strategy of the nationalistic Americans’ attempt to suppress the rise of China. Would China give in to the requests of the US under the threat of the escalation of the trade war? In what way? My conjecture is that China is willing to compromise up to a point. What China is likely to do is to promise to buy more goods and services from the US, allow greater market access for American firms, reduce Chinese subsidies to its industries, reduce forced technology transfers by American firms, strengthen enforcement of intellectual property rights protection and make verification all these commitments more transparent. Although the US might stop escalating the trade war, it is likely that the tariffs already imposed on Chinese goods would not be removed soon. In response to that, China also would not remove most of those tariffs already imposed on imports from the US, in keeping with the spirit of the tit-for-tat policy. It is possible that a temporary ceasefire is agreed, but the trade war can last for a long time. The final assembly stage of many industries might leave China, but not necessarily the whole production process. Hong Kong can be a victim of the trade war if it escalates.