President Trump’s victory and threat of additional tariffs raises hopes for further Chinese stimulus

BEIJING – Donald Trump’s 2024 presidential victory is expected to raise the bar for China’s fiscal stimulus on Friday.

At his election hearing, President Trump threatened to impose additional tariffs of more than 60% on Chinese goods sold to the United States. Tariffs of at least 10% were raised during President Trump’s first term, but The United States’ status as its largest trading partner remained intact.

But the new tariffs are likely to be much larger and come at a crucial time for China. The country is increasingly relying on exports for growth as it battles a real estate recession and weak consumer spending.

Zhu Baoliang, former chief economist at the China Economic Planning Bureau, said at a Citigroup conference that if President Trump raises tariffs to 60%, China’s exports will decline by $200 billion and its gross domestic product will drop by 1 percentage point. He said it could be pushed down.

Since late September, Chinese authorities have stepped up efforts to support slowing economic growth. The Standing Committee of the National People’s Congress (the country’s parliament) is expected to approve additional fiscal stimulus at its meeting, which concludes this Friday.

“In response to a potential ‘Trump shock’, the Chinese government is likely to introduce stronger economic stimulus,” said Yue Su, chief economist at the Economist Intelligence Unit. “The confluence of the National People’s Congress and the US election results suggests that the government is prepared to take swift action.”

He predicts more than 10 trillion yuan ($1.39 billion) in stimulus is planned, of which about 6 trillion yuan will go to local government debt swaps and bank recapitalization. Su said more than 4 trillion yuan is likely to be earmarked for local government special bonds to support real estate. She did not specify the period.

Stocks in mainland China and Hong Kong fell on Wednesday after it became clear that Trump would win the election. Since then, U.S. stocks have skyrocketed, with the three major indexes hitting record highs. In Thursday morning trading, Chinese stocks tried to maintain modest gains.

Liqian Ren, head of WisdomTree’s quantitative investing capability, said this divergence in stock performance indicates that China’s economic stimulus package “will be slightly larger than our base case.” He expects the Chinese government to add about 2 trillion yuan to 3 trillion yuan in aid annually.

Mr. Ren does not expect a significant increase in support because of the uncertainty about how President Trump will act. He noted that while tariffs would hurt both countries, restrictions on technology and investment would have a bigger impact on China.

During President Trump’s first term, he placed Chinese telecommunications giant Huawei on a blacklist that restricted its use of U.S. suppliers. The Biden administration has expanded on those moves, restricting U.S. sales of advanced semiconductors to China and pressuring allies to do the same.

Chris Miller, author of “The Chip Wars,” noted earlier this year that both Democrats and Republicans support passing these new export controls and efforts to increase investment in semiconductor manufacturing in the United States. He expected the U.S. to tighten these restrictions regardless of who wins the election.

China is focusing on strengthening its technological capabilities by encouraging bank lending to high-end manufacturing. But the country has long benefited not only from American capital but also from its ability to use American software and high-end components.

NBC News predicts Republicans will gain a majority in the Senate over the next two years, but control of the House remains uncertain.

“Republican control of Congress could accelerate protectionist measures, widen the impact on the global economy and pose significant downside risks,” Su said.

She expects President Trump will likely impose such tariffs in the first half of next year, adding that the International Emergency Economic Powers Act, which allows the president to impose tariffs of up to $500, and the Trade Act of 1974 We anticipate that invoking Article 122 may speed up the process. 15% in response to the serious balance of payments deficit.

According to US data, the trade deficit with China narrowed from $346.83 billion in 2016 to $279.11 billion in 2023.

Assuming other factors remain unchanged, a 10% increase in tariffs on China’s exports to the United States could reduce China’s real GDP growth by an average of 0.3 to 0.4 percentage points over the next two years, Su said. I calculated that there is.

China’s exports to the United States fell 14% last year to $500.29 billion, according to customs data from Wind Information. That’s still up from $385.08 billion in 2016, before Trump took office in his first term.

Meanwhile, China’s annual imports from the United States increased from $134.4 billion in 2016 to $164.16 billion in 2023, according to Chinese data.

Other analysts believe that rather than announcing any major policy measures on Friday, the Chinese government will remain conservative and gradually roll out stimulus over the coming months.

China’s top leaders typically meet in mid-December to discuss economic plans for the year ahead. Officials were then scheduled to announce this year’s growth targets at the annual parliamentary meeting in March.

“China is likely to face higher tariffs from the United States next year; We expect that China will also take a policy response.”

“I also don’t think the government will change the policies it has already proposed to the National People’s Congress because of the U.S. election,” he said.

Regardless of tariffs, China will remain a major exporter to markets outside the US

“China’s exports have shifted slightly in recent years in terms of destinations, with the United States accounting for a larger share of China’s total exports in 2023, compared to an average of nearly 18% in the 2010s,” said Francoise Huang, senior economist. The proportion is less than 15%.” said about Asia-Pacific and global trade at Allianz Trade.

“While China is losing market share in the U.S., it is clearly gaining market share elsewhere,” she said. “For example, China now accounts for more than 25% of ASEAN imports, compared to less than 18% in the 2010s.”

According to a report released by the Federal Reserve in August, China’s exports to countries bound for the United States are also increasing.

—CNBC’s Dylan Butts contributed to this report.