Chinese and American flags fly near the Bund, before the US trade delegation meets its Chinese counterparts for talks in Shanghai, China, July 30, 2019.
Ali Song | Reuters
BEIJING — Donald Trump's 2024 presidential win raised the bar on China's expected fiscal stimulus plans on Friday.
In a campaign trial, Trump threatened to impose additional tariffs of 60% or more on Chinese goods sold to the United States. Increasing tariffs by at least 10% during Trump's first term as president did not weaken America's position as China's largest trading partner.
But the new tariffs — likely to be more widespread — will come at a pivotal time for China. The country is relying more on exports for growth as it battles declining real estate and tepid consumer spending.
If Trump raises tariffs to 60%, it could cause China's exports to fall by $200 billion, causing GDP to fall by a percentage point, Zhou Baoliang, former chief economist at the China Economic Planning Agency, said at a Citigroup conference. one.
Since late September, Chinese authorities have intensified efforts to support slowing economic growth. The Standing Committee of China's National People's Congress – the country's parliament – is expected to approve additional financial incentives at its meeting this week, which concludes its work on Friday.
“In response to potential Trump shocks, the Chinese government is likely to take larger stimulus measures,” said Yu Su, chief economist at the Economist Intelligence Unit. “The overlap of China’s National People’s Congress meeting with the US election result indicates that the government is prepared to take swift action.”
It expects a stimulus package worth more than 10 trillion yuan ($1.39 billion), with about 6 trillion yuan allocated to swap local government debt and recapitalize banks. More than 4 trillion yuan will likely be allocated for special bonds of local governments to support real estate, Su said. It was not specified during any time period.
Stock market variability
Mainland China and Hong Kong stocks fell on Wednesday after it became clear that Trump would win the election. US stocks then rose as the three major indexes reached record levels. In morning trading on Thursday, Chinese stocks attempted to maintain moderate gains.
This difference in stock performance suggests that China's stimulus “will be a little larger than the baseline scenario,” said Liqian Ren, who leads WisdomTree's quantitative investing capabilities. It estimates that Beijing will add about 2 trillion yuan to 3 trillion yuan annually in support.
Rehn does not expect much greater support because of doubts about how Trump will act. She noted that tariffs hurt both countries, but restrictions on technology and investment have a greater impact on China.
Trump, during his first term as president, blacklisted Chinese telecom giant Huawei from using American suppliers. The Biden administration expanded on those moves by limiting U.S. sales of advanced semiconductors to China and pressuring allies to do the same.
Both Democrats and Republicans have supported passage of new export controls and efforts to boost investment in U.S. semiconductor manufacturing, as Chris Miller, author of “The Chip War,” noted earlier this year. He expected the United States to increase these restrictions regardless of who won the elections.
China has redoubled its efforts to boost its technology by encouraging bank loans for advanced manufacturing. But the country has long benefited from American capital, as well as the ability to use American software and advanced parts.
Republicans have secured a majority in the Senate for the next two years, according to NBC News projections, although control of the House remains unclear.
“If the GOP takes control of Congress, trade protectionism could accelerate, amplifying the impacts on the global economy and presenting significant downside risks,” Su said.
She expects Trump will likely impose such tariffs in the first half of next year, and could speed up the process by triggering the International Emergency Economic Powers Act, or Section 122 of the Trade Act of 1974, which allows the president to impose tariffs of up to 15% in response. On the serious deficit in the balance of payments.
US data show that the trade deficit with China shrinks to $279.11 billion in 2023, from $346.83 billion in 2016.
Su estimated that a 10% tariff increase on Chinese exports to the United States could reduce Beijing's real GDP growth by an average of 0.3 to 0.4 percentage points in the next two years, assuming other factors remain constant.
China's exports to the United States fell 14% last year to $500.29 billion, according to Customs Wind Information data. This is still higher than $385.08 billion in 2016, before Trump was sworn in for his first term.
Meanwhile, Chinese data showed that China's annual imports from the United States rose to $164.16 billion in 2023, compared to $134.4 billion in 2016.
Other analysts believe Beijing will remain conservative, doling out stimulus over the coming months rather than issuing a large package on Friday.
China's top leaders usually meet in mid-December to discuss economic plans for next year. Officials will then announce this year's growth target at an annual parliamentary meeting in March.
“China will likely face much higher tariffs than the United States next year,” Qiu Zhang, chief economist at Pinpoint Asset Management, said in a note on Wednesday afternoon. “I expect a political pushback from China will also take place next year when higher tariffs are imposed.” .
“I also don't think the government will change the policies it has already proposed to the National People's Congress because of the US elections,” he added.
China's growing global trade influence
Tariffs aside, China remains an export powerhouse to markets outside the United States
“Chinese exports have actually shifted slightly in the past few years in terms of destination, with the United States accounting for less than 15% of total Chinese exports in 2023, compared to about 18% on average in the first decade of the year,” said Francoise Huang, chief economist. 21st century. For Asia-Pacific and global trade at Allianz Trade in September.
“While China has lost market share in the United States, it is clearly gaining ground elsewhere,” she said. “For example, China now accounts for more than 25% of ASEAN imports, compared to less than 18% in the 2000s.”
China's exports to countries that sell their products to the United States also grew, according to a Federal Reserve report in August.
— CNBC's Dylan Potts contributed to this report.
