The recent election of Donald Trump as president has set the stage for significant implications regarding China’s economic policies, particularly regarding the fiscal stimulus measures expected to be announced soon. As Trump prepares to take office, he has signaled intent to impose substantial tariffs – potentially exceeding 60% – on Chinese imports into the United States. This development is significant given that the previous round of tariff increases during his first term did not prevent the United States from maintaining its position as China’s largest trading partner.
Such a drastic increase in tariffs could come at a tumultuous time for China, which is increasingly reliant on exports for economic growth amid a slumping housing market and sluggish consumer spending. Economic expert Zhu Baoliang has suggested that if these tariffs were adopted, they could lead to a $200 billion reduction in Chinese exports and a corresponding 1% slowdown in GDP growth.
In response to these economic pressures, Chinese authorities have stepped up efforts to stimulate growth in recent weeks. The National People’s Congress (NPC), China’s legislative body, is expected to approve further fiscal measures aimed at supporting the economy at its next meeting. Analysts expect the Chinese government to unveil a stimulus package exceeding 10 trillion yuan (about $1.39 trillion), focused on local government debt swaps and support for the real estate sector.
Yue Su, an economist at the Economist Intelligence Unit, predicts that potential “Trump shocks” will push the Chinese government to implement more aggressive stimulus strategies. The coincidence of the NPC meeting with the election results suggests a willingness to act quickly.
After Trump’s election victory, stock markets reacted differently in China and the United States. Mainland Chinese stocks, along with those in Hong Kong, saw declines, while US markets rose to record highs. This disparity in stock market performance indicates that the expected Chinese stimulus may be more substantial than previously expected, according to WisdomTree’s Liqian Ren.
While Ren expects the government to inject an additional 2-3 trillion yuan of support per year, he cautions against expecting radical measures due to the uncertainty surrounding the Trump administration. He points out that while tariffs impact both nations, restrictions on technology and investment pose a more significant challenge to China.
During his first term, Trump imposed restrictions on Huawei, a major Chinese telecommunications company, effectively blocking it from accessing U.S. suppliers. The Biden administration has since expanded those efforts, limiting sales of advanced semiconductors to China and urging allies to adopt similar policies. These export controls have garnered bipartisan support, with both political parties supporting increasing domestic semiconductor manufacturing capabilities.
Looking ahead, projections suggest that Republicans could hold a majority in the Senate for the next two years, although the balance of power in the House of Representatives remains uncertain. If the GOP remains in control, there is a risk of accelerated protectionist measures, which could pose risks to the global economy.
Economists predict that Trump could implement these tariffs in the first half of next year, potentially using laws that allow for rapid tariff actions in response to economic imbalances. Current US data indicates that the trade deficit with China narrowed to $279.11 billion in 2023, down from $346.83 billion in 2016, suggesting some changes in trade dynamics.
Analysts estimate that a 10% increase in tariffs could lead to a decline in China’s real GDP growth by 0.3-0.4 percentage points over the next two years, assuming all other factors remain constant. Despite a 14% decline in Chinese exports to the United States last year, the total value remains significantly higher than pre-Trump levels, indicating the resilience of trade.
While some experts predict immediate and aggressive stimulus measures from Beijing, others believe the government will take a more measured approach, gradually rolling out support over the coming months. China’s leadership usually meets in December to outline economic goals for the following year, with specific growth targets announced during the March parliamentary session.
Regardless of the tariff situation, China continues to maintain a robust export market beyond the United States. Indeed, the percentage of Chinese exports going to the United States has declined, accounting for less than 15% of total exports in 2023, compared to nearly 18% in the 2010s. This change implies a diversification of trade relations, with China increases its exports to ASEAN countries and other markets.
Francoise Huang, an economist at Allianz Trade, notes that while China has lost ground in the US market, it has successfully expanded its influence elsewhere. Chinese exports to ASEAN countries now account for more than 25% of imports in those markets, a significant increase from less than 18% in previous years.
Ultimately, as the United States prepares for a new chapter under Trump’s leadership, attention will turn to how China addresses potential economic challenges posed by increased tariffs and trade restrictions. With a strong emphasis on fiscal stimulus and strategic trade partnerships, China aims to strengthen its economy by adapting to the changing global landscape. The coming weeks and months will be crucial in determining the trajectory of both countries’ economic relations and the broader implications for global trade.
