Investing.com -- According to BCA Research's GeoMacro Strategy service, the U.S. has two key leverage points it can use against China.
First, the U.S. consumer market is the largest globally, and although China has diversified its exports, the U.S. remains a critical market, BCA said in a recent note.
The report suggests that Chinese policymakers may find it hard to resist the appeal of boosting weak domestic demand by relying more on American consumers, especially since they are reluctant to implement large-scale fiscal stimulus.
The U.S. is now geopolitically and politically prepared to negotiate with China on its own terms, which could explain why it might allow China continued access to its market.
The second pressure point is China’s current account (CA) balance, which is heading towards a deficit.
China's surplus, which had been bolstered by a surge in pandemic-related exports and restrictions on international travel, is unlikely to be sustained, especially if overseas tourism returns to pre-pandemic levels.
"China already flirted with a CA deficit back in 2018, when it almost entered a deficit,” BCA notes.
“It then built back a robust surplus, thanks to the pandemic-induced exports splurge and the zero-COVID-19 policy that made it difficult to travel abroad." Since 2023, the surplus has stabilized at around $253 billion.
For the U.S., reducing China's current account surplus is viewed as a national security priority.
While the Trump administration emphasized the trade imbalance in goods, the U.S. holds a stronger position in services, making it crucial for future trade talks to focus on opening the Chinese market to U.S. service exports.
At the moment, the U.S. appears ready to restrict China’s access to its domestic market and could use this access as both "a carrot, not only a stick,” BCA notes.
Republican nominee Donald Trump, in his bid for the presidency this November, has threatened to hike tariffs on Chinese exports from the current 10% to as high as 60% across the board if he secures the second term.
With Trump running neck and neck with his Democratic opponent Kamala Harris in key swing states, Beijing faces the looming possibility of a second major trade war.