Trump's Victory and Its Implications for China's Economic Stimulus

Chinese and U.S. flags flutter near The Bund, as U.S. trade representatives prepare for discussions with their Chinese counterparts in Shanghai.

Aly Song | Reuters

BEIJING — Donald Trump's recent presidential win in 2024 has heightened expectations regarding China's forthcoming economic stimulus plans, which are anticipated this Friday.

Throughout his campaign, Trump hinted at implementing significant tariffs, potentially exceeding 60%, on Chinese imports to the U.S. During his first presidency, increased tariffs of a minimum of 10% did not affect America's status as China's top trading partner.

The introduction of new tariffs — which could be more substantial — comes at a critical juncture for China, as the country seeks to bolster its economy amidst challenges such as a real estate downturn and weak consumer spending.

If tariffs were to rise to 60%, estimates indicate that China's exports could drop by $200 billion, creating a downward pressure of about 1 percentage point on the country's GDP, according to Zhu Baoliang, a former chief economist with China's economic planning agency.

In light of these developments, Chinese authorities have intensified initiatives to boost economic growth since late September. The National People's Congress (NPC), China's legislative body, is expected to sanction further fiscal measures during its session concluding this week.

"In anticipation of potential 'Trump shocks,' the Chinese government is likely poised to introduce more substantial economic stimulus," stated Yue Su, principal economist at the Economist Intelligence Unit. She noted the timing of the NPC meeting coinciding with the U.S. election results suggests the government is ready to act swiftly.

Su forecasts a stimulus package exceeding 10 trillion yuan ($1.39 trillion), with around 6 trillion yuan allocated for local government debt swaps and banking sector support. Additionally, over 4 trillion yuan may be earmarked for local government bonds aimed at assisting the real estate sector, although she did not specify the timeline for these initiatives.

Market Reactions

The stock markets in mainland China and Hong Kong experienced declines on the news of Trump's election victory, while U.S. stock indexes surged to record highs. During Thursday's trading, Chinese stocks attempted to maintain slight gains.

This disparity in stock performance indicates that China's stimulus measures are likely to be more considerable than initially anticipated, according to Liqian Ren, who oversees WisdomTree's quantitative investment strategies. She estimates that Beijing could provide an additional 2 trillion to 3 trillion yuan in support annually.

Despite potential increases in assistance, Ren believes the response will remain cautious due to uncertainties surrounding Trump's forthcoming actions. She emphasized that tariffs adversely affect both economies, but restrictions on technology and investments impact China more significantly.

Throughout his first term, Trump placed restrictions on Chinese tech giant Huawei, limiting its access to U.S. suppliers. The Biden administration built upon these limitations by imposing export controls on advanced semiconductors to China and urging allied nations to follow suit.

Both major political parties, Democrats and Republicans, have shown support for stricter export controls and incentives aimed at bolstering U.S. semiconductor manufacturing, as highlighted by Chris Miller, an expert on the topic. He anticipates continued enforcement of these restrictions regardless of the outcome of the election.

China is focusing on strengthening its own technology sector by promoting bank loans for advanced manufacturing. Historically, the country has relied on U.S. capital and technology, including software and high-tech components.

With Republicans expected to hold the Senate majority for the next two years, the ultimate control of the House of Representatives remains uncertain.

"If the Republican Party retains control of Congress, it's likely to intensify protectionist policies, which could impact the global economy and pose significant risks," Su highlighted.

She projects that Trump may impose new tariffs in the first half of next year, potentially utilizing the International Emergency Economic Powers Act or Section 122 of the Trade Act — both of which allow for tariff increases in response to significant trade deficits.

U.S. trade data indicates that the trade deficit with China narrowed to $279.11 billion in 2023, down from $346.83 billion in 2016.

According to Su, an increase of just 10% in tariffs on Chinese exports to the U.S. could lower real GDP growth in China by approximately 0.3 to 0.4 percentage points over the next two years, assuming other factors remain stable.

Data from Chinese customs reveals that exports to the U.S. fell by 14% last year, totaling $500.29 billion — a figure that, while down, remains higher than the $385.08 billion recorded in 2016 prior to Trump's first term.

At the same time, China's yearly imports from the U.S. climbed to $164.16 billion in 2023, compared to $134.4 billion in 2016.

Some analysts believe that China may adopt a more conservative approach, gradually rolling out stimulus measures rather than announcing a substantial package this Friday. China's leaders traditionally convene in mid-December to finalize economic objectives for the upcoming year, with growth targets formally unveiled during the annual parliamentary meeting in March.

"With higher tariffs from the U.S. expected next year, I anticipate China will respond with policy measures as needed when tariffs increase," noted Zhiwei Zhang, chief economist at Pinpoint Asset Management.

"I do not expect the government to significantly alter existing plans due to the recent U.S. election results," he added.

China's Expanding Global Trade Role

Regardless of potential tariffs, China continues to be an export leader in global markets outside the U.S.

According to Francoise Huang, an Asia-Pacific and global trade economist at Allianz Trade, Chinese exports have shifted somewhat over recent years regarding their destinations, with the U.S. accounting for less than 15% of overall Chinese exports in 2023, compared to approximately 18% on average throughout the 2010s.

"Although China has lost some market share in the U.S., it has gained significant ground in other regions," she said. "For instance, China now constitutes more than 25% of ASEAN imports, compared to less than 18% in the 2010s."

China's exports have also grown to countries that themselves achieve high exports to the U.S., as revealed by a Federal Reserve report released in August.

Trump, China, Stimulus, Tariffs, Economy