As trade war escalates, economists bet on China resilience

By Ankika Biswas and Bansari Mayur Kamdar

(Reuters) - With China at the forefront of U.S. President Donald Trump's tariff agenda, domestic economists expect a combination of policy measures, supply chain adjustments and strengthened global partnerships to cushion the world's second-largest economy as the trade war intensifies.

"We (China) have taken proactive steps to mitigate the impact of the trade war," Zong Liang, chief economist, Research Institute at state-owned Bank of China, told the Reuters Global Markets Forum.

"We've made it easier for other countries to do business with us, strengthening trade relationships beyond the U.S.," Zong said.

Minutes after Trump's 10% tariff on Chinese imports took effect on Feb. 4, Beijing announced retaliatory tariffs on some U.S. energy products and autos along with a range of measures against Google and other U.S. firms.

Trump has also announced a 25% tariff on all steel and aluminum imports into the U.S., which was eventually followed by multiple countries including Vietnam, South Korea and India unveiling their own measures on Chinese steel and steel-related imports.

"Despite this, (China's) share of global exports has remained strong," Zong said, adding that he expected China to adopt a more aggressive fiscal policy this year along with additional measures to stabilise domestic demand.

Alex Hongcai Xu, deputy director of the Economic Policy Committee at the China Association for Policy Sciences, said Chinese companies are diversifying their export markets and broadening overseas investment cooperation, which will help mitigate trade war costs and risks.

In order to further safeguard itself, Xu expects China to provide financial subsidies and tax breaks to the tariff-hit agriculture and manufacturing sectors.

Both economists also noted that the U.S.-Sino trade war opens up opportunities for China to deepen relationships with Southeast Asian nations, the European Union and other tariff-hit countries, strengthening partnerships such as the Belt and Road Initiative (BRI).

Kishore Mahbubani, veteran Singaporean diplomat and distinguished fellow at the National University of Singapore, said BRI will gain momentum as countries look outside for help after the U.S. has shut down aid.

Trump has halted most U.S. government-funded aid globally for 90 days, while moving to dismantle the United States Agency for International Development (USAID), as part of his effort to cut the federal government workforce and curb spending it considers wasteful.

"There are very few countries that can be as generous as the U.S. at that scale ... and, that is China," said Mahbubani, who was also the president of the UN Security Council in 2001 and 2002.

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(Reporting by Ankika Biswas and Bansari Mayur Kamdar in Bengaluru; Editing by Divya Chowdhury and)