Donald Trump’s victory in the 2024 US presidential election has sent shockwaves through global markets, particularly impacting China’s economic outlook. Trump’s campaign trail threats of imposing significantly higher tariffs on Chinese goods—potentially exceeding 60%—have prompted concerns about a potential major trade war. This development comes at a critical juncture for China, as the country grapples with a slowing economy, a struggling real estate sector, and sluggish consumer spending, making it increasingly reliant on exports for growth. Economists are now scrambling to assess the potential impact of these higher tariffs and the countermeasures China may implement to mitigate the economic blow.
Key Takeaways: China Braces for Potential Trump Tariffs
- Trump’s win heralds a potential surge in tariffs on Chinese goods, potentially exceeding 60%, significantly escalating trade tensions.
- China’s economy, already grappling with weakened growth, faces immense pressure from the potential tariff shock, as export-led growth becomes increasingly critical.
- Economists predict drastic consequences: 60% tariffs could slash Chinese exports by $200 billion, triggering a one-percentage-point drop in GDP.
- China’s National People’s Congress is poised to announce a massive fiscal stimulus package, possibly exceeding 10 trillion yuan ($1.39 trillion), to counter the anticipated economic downturn.
- Stock markets demonstrate diverging reactions, with Chinese markets falling following Trump’s election, while US markets soar, underlining market uncertainty and expectation of significant Chinese stimulus.
Stock Market Divergence Reveals China’s Dilemma
The contrasting performance of mainland China and Hong Kong stocks versus their US counterparts is telling. Following Trump’s victory, mainland and Hong Kong markets plummeted while US markets reached record highs. This divergence starkly highlights market expectations of a substantial Chinese stimulus effort to offset the damage caused by potential increased tariffs. Analysts like Liqian Ren at WisdomTree predict additional stimulus ranging from 2 to 3 trillion yuan annually, though the exact amount remains uncertain due to unpredictability surrounding potential US policy actions.
The Impact of Tech Restrictions
The situation is further complicated by existing and potential future restrictions on technology and investment. Trump’s previous administration blacklisted Huawei, severely limiting its access to US suppliers, a trend continued and intensified by the Biden administration’s controls on semiconductor sales to China. Chris Miller, author of “Chip War,” notes bipartisan support for these restrictions, suggesting that stricter measures are likely to come at minimum from the Biden administration, regardless of who wins. While China is bolstering the development of its tech sector, the loss of access to US capital and technology remains a major blow to its economic potential.
Political Landscape and Potential for Action
The Republican gain of a Senate majority further compounds the risk for China. This increase in Republican power heightens the likelihood of protectionist policy acceleration and increases the probability of downside risks, according to Yue Su of the Economist Intelligence Unit. Su anticipates potential tariff implementation in the first half of next year, potentially leveraging the International Emergency Economic Powers Act or Section 122 of the Trade Act of 1974. Though the US trade deficit with China has decreased, it still remains substantial, leaving China vulnerable to protectionist measures.
However, other analysts foresee more cautious stimulus implementation from China, with measures rolled out incrementally in multiple stages over the coming months and years, rather than massive stimulus at once. Traditional policy-making timelines also factor into the discussion, where such decisions are usually announced in December, with official growth targets for the year announced in March.
China’s Expanding Global Trade Influence
While the potential ramifications of increased US tariffs are considerable, it’s crucial to acknowledge China’s expanding global trade influence beyond the US market. Although China’s export share to the US has decreased slightly, it has simultaneously strengthened its presence in other key markets. Francoise Huang of Allianz Trade highlights China’s growing influence in ASEAN, where it now accounts for over 25% of imports. A Federal Reserve report also underscores this trend, emphasizing China’s growing export ties to countries that are major suppliers to the US market. This diversification of trade relationships helps mitigate risk and demonstrates increasing resilience of China’s global economic capabilities.
Conclusion
The interplay between a potential resurgence of aggressive US trade protectionism under a Trump presidency and China’s economic vulnerabilities creates a complex and uncertain environment. The unprecedented nature of the potential trade implications demands careful observation of China’s fiscal stimulus response and how it will navigate what could become a prolonged period of heightened geopolitical and economic tension. Whether through swift, large-scale stimulus or a cautious, measured approach and diversification of trading relationships, China’s reaction will be instrumental in determining the future trajectory of the global economy. The international community will watch closely for further developments in the coming months and years.
