China prepares for war of attrition over tariffs

Beijing, feeling boxed into a corner by the United States' intensifying tariff assault on China and any country that buys or assembles Chinese goods, is bracing for an economic war of attrition.

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Washington last week imposed import tariffs of at least 10% on almost the entire world, and much higher levies on countries such as Vietnam, where Chinese factories have been shifting production. This drew retaliation from China, followed by new threats of escalation from US President Donald Trump.

China has no great options, though. It will court other markets in Asia, Europe and the rest of the world, but this may not be much of an escape valve.

Other countries have much smaller markets than the US, and local economies are also taking a hit from the tariffs. Many are also wary of allowing more cheap Chinese products in.

Domestically, currency devaluation would be the simplest way to cushion the tariffs' impact but that could trigger capital outflows, while also alienating trade partners China may try to court. China has so far allowed very limited yuan depreciation.