To start with, Chinese investors are getting "jittery," which may be part of the reason that the Chinese stock market has fallen sharply in the past four months, The Economist reports. "And this is just one of a series of awkward facts for China as its trade war with America deepens. The yuan is down 8 percent against the dollar since April, and near its weakest in more than a year. A shrinking trade surplus produced a current-account deficit in the first half of 2018, China’s first such gap in at least two decades. More broadly, China’s growth is slowing at a time when America’s economy is expanding at its fastest pace since 2014."
China's ability to retaliate with tariffs of its own is limited: since the U.S. buys more products from China than vice versa, the U.S. can impose effective tariffs on more products. China is reluctant to borrow money to ease domestic pains from the trade war, as Trump proposes to do, because the Chinese government has been focusing on reining in the national debt over the past two years.
But it's not all bad news for China: the boost in exports, caused by the falling yuan, could make up for some or all of the money lost to tariffs, according to Andrew Tilton, the chief Asia economist at Goldman Sachs. And Chinese government officials have made it easier for cities to get funding for infrastructure projects, which they hope will stimulate the economy, The Economist reports.
"The economic backdrop to the trade war could also change over the next year. As China tiptoes towards easing, its credit growth should pick up," The Economist reports. "Meanwhile, America may be near the top of its growth cycle, with gains from last year’s tax cut set to dissipate. Louis Kuijs of Oxford Economics, a research firm, says the divergence in their stockmarkets might reflect overconfidence in America and an evaporation of confidence in China."
Economics columnist Robert Samuelson writes for The Washington Post that Trump's trade war may backfire. Not only will targeted countries not give in to his demands, U.S. companies, hurting from tariffs, are raising their products' prices, which hurts American consumers.