Author: Joesph Patterson

The self-proclaimed “Tariff Man” President elect (and ex-President) Donald Trump will reascend to the White House on 20^th January 2025, and one of his first orders of business will be to batter China with 60% tariffs on all their export to the United States. Such tariffs, if introduced, will obliterate China/United States trade and will damage exports which has been one of the bright spots in an otherwise gloomy Chinese economy. However, many experts suggest that the Chinese government might deliberately weaken the Yuan, in order to make their exports more competitive, plus they feel that the broad budget deficit will be increased as well in response to the election of Donald Trump.

The election of ex-President Trump could not have come at a worse time for the Chinese economy, which has been struggling for a number of years. The housing market, once the driving force behind China’s economy, is currently a spent force. Analysts suggest that by close of business 31^st December 2024, between completed and still under construction floor space, 2.9 billion square feet will remain unsold housing inventory. The downturn in the property market has left local governments shouldering billions in unsustainable debt, with analysts estimating the size of the debt as in the region of USD20.7 Trillion (Yuan147 Trillion), which as a comparison is just over 50% of the national debt of the United States which stands at USD36 Trillion as of November 2024. 

China has been struggling with weak domestic demand in the property sector, and this has been attributed to high youth unemployment, low pensions and wages and a social safety net which is at best chronically feeble. The net result is China’s household spending is 20% points behind the global average coming in at under 40% of Gross Domestic Product, and the government has to either increase the national debt burden or redistribute the national income in order to boost this sector. Indeed, on Friday 8^th November 2024, Chinese officials gave indebted local governments a lifeline of USD1.4 Trillion (Yuan10 Trillion), however many economic commentators who are China focused said that they felt a much larger sum should have been allocated such as USD2 Trillion or above.

Therefore, with a struggling economy and masses of local government debt, it is envisioned that Trump’s administration policy of 60% tariffs on China will negatively impact a number of areas within their economy. If China feels that Donald Trump is serious, then output in the short term may well increase prior to the introduction of tariffs. It is, however, felt by many experts that there will be a long-term negative impact on the industrial activity in China. As mentioned above, the Chinese Government will use monetary and fiscal policy to support the economy (especially the construction and housing sectors), however, the decline in private investment and drastically reduced exports to the United States will outweigh any expected fiscal and monetary offsets. 

Elsewhere, experts suggest that another sector to be hit hard by tariffs will be the high-tech electronics sector, with advanced production being taken on in countries such as South Korea and Japan. Tariffs may well also restrict the flow of knowledge, thus eroding competitiveness and productivity in this sector. Furthermore, supply chains will take a hit as companies seek to reposition their operations away from China in the hope that they will avoid tariffs, with the machinery and automotive sectors being hit hard as parts are traded multiple times across border to border before final assembly commences. 

Many analysts are predicting that a Trump2 Presidency will be more destructive than the previous version, and the effect of tariffs on the USD500 Billion worth of goods will ignite a trade war worse than Trump1. It is expected that growth in China will be slower under a Trump presidency, and some analysts are predicting between 1% and 2% drop in GDP. Other experts suggest a minimal fall, as China will embrace greater stimulus and bolster manufacturing, whilst allowing the Yuan to weaken helping to offset the negative effects of Trump2. 

On the geopolitical front, President elect Trump has promised tariffs of between 150% and 200% should China blockade Taiwan, and China’s continued political and economic support for Russia has not gone down well in the west. If China approaches the European Union to increase exports to the Eurozone, Trump has promised increased tariffs to the EU’s exports to the United States. All in all, from the 20th of January 2025 (inauguration day), the US/China relationship could well have negative effects on a global scale.