Trump 2.0

Drawing on his previous term and campaign pledges, most experts predict a more aggressive economic stance toward China, which could redefine bilateral relations and have significant global implications.

Trump argues that the new tariffs will generate additional revenue, US$4.5 trillion over a 10-year period, which would allow him to scrap federal income tax. But according to Liu Ying, a researcher at the Chongyang Institute for Financial Studies at the Beijing-based Renmin University of China, the figure is overblown. “It is a static estimate that fails to account for market responses,” Liu told NewsChina.　

Liu added that amid China’s efforts to push forward its Belt and Road Initiative, China’s global trade landscape has shifted significantly, with a much more diverse and global export structure than ever. According to data released by China’s General Administration of Customs, bilateral trade between China and the US reached US$664.4 billion in 2023, down 12.5 percent from the previous year. In 2023, China’s exports to the US amounted to US$500 billion, accounting for 14.8 percent of China’s total exports, down from 19.3 percent in 2018, when Trump imposed tariffs on Chinese products during his first tenure.　

“American consumers are the ones who will bear the burden of these tariffs,” Liu said, referring to a report released by the National Retail Federation of the US on November 4, which warned that Trump’s proposed tariffs on just the six categories it examined – apparel, toys, furniture, household appliances, footwear and travel goods – would reduce American consumer spending power by between US$46 billion and US$78 billion every year.　

Despite China’s more resilient trade structure, Trump’s proposed tariffs will no doubt deal a huge blow to China’s export sector. According to an estimate released on November 6 by the Macquarie Group, a global financial service company, if Trump imposes 60 percent tariffs on Chinese products, it could lead to an 8 percent drop in China’s total exports, and drag down China’s growth rate by 2 percent. But if China retaliates with reciprocal tariffs or other trade measures, it could lower US GDP by 0.8 percent and add 4.3 percent to inflation by 2028.　

A separate analysis by the Tax Policy Center, a Washington-based think tank, estimates that a 20 percent worldwide tariff and a 60 percent levy on Chinese products would raise costs by US$3,000 in 2025 for the average US household, reducing average after-tax incomes by 3 percent.　

Tariff increases will also harm the wider world economy. The World Economic Outlook released on October 22 by the International Monetary Fund warned that a 10 percent tariff increase by the US and the rest of the world would “directly affect about one-quarter of all goods trade, representing close to 6 percent of global GDP,” and would result in a 0.4 percent fall in the US economy.　

Given the high cost and high stakes of Trump’s proposed tariff policies, many analysts do not believe that his campaign pledges will materialize, at least not in full. Lü Xiang, a research fellow at the Institute of American Studies at the Chinese Academy of Social Sciences, argues that while Trump will continue his trade protectionist policies toward China, he is unlikely to significantly raise existing tariffs. “Instead, Trump may focus more on specific industries to find leverage to negotiate with China,” Lü said.

Lü’s view is shared by Tu Xinquan, a professor and dean of the China Institute for WTO Studies at the Beijing-based University of International Business and Economics, who told NewsChina that Trump’s “America First” strategy has always emphasized reducing reliance on imports, particularly from China, and bringing critical supply chains back to the US. Tu expects that the new Trump administration will impose tougher restrictions in areas like semiconductors, quantum computers and AI, which will accelerate the decoupling of the two countries in the high-tech sector.　

For Luo Zhiheng, Chief Economist and director of the Research Institute at Yuekai Securities, compared to imposing broad tariffs, which could drive up living costs and inflation in the US, targeting the high-tech sector has fewer visible repercussions for American consumers and would be thought to be politically and economically more feasible. “Trump’s new sanctions are likely to extend beyond the current targets to cover advanced manufacturing and biotechnologies,” Luo said.　

According to Lian Ping, director and chief economist of the Guangkai Chief Industry Research Institute, compared to the Biden administration, the new Trump administration poses a much more serious challenge for China. Although President Joe Biden continued Trump’s trade policies, his tariff policies and “high-fence, small yard” approach in the high-tech sector are “relatively measured,” and their impact on ChinaUS trade is “partial, structural, and gradual,” Lian wrote in a commentary on the WeChat account of the China Chief Economist Forum, an opinion platform for leading Chinese economists. By comparison, Trump’s policy could do far more extensive damage to bilateral ties, Lian added.

In 2019, after threatening to raise tariffs on US$200 billion of Chinese products to 25 percent from 10 percent, the two countries reached a trade deal in which China pledged to purchase an additional US$200 billion of American goods. During his campaign, Trump implied that he favors strict investment restrictions, pledging to “establish new rules to stop US companies from investing in China and stop China from buying up America.” He also suggested that he may welcome Chinese auto companies to build plants in the US.　

To counteract uncertainties and potential disruptions caused by Trump, Chinese experts advise strengthening internal economic mechanisms. “Addressing external risks requires a robust internal strategy, including expanding domestic consumption and maintaining balanced government-market relations,” Luo Zhiheng said.　

For Tu Xinquan, China needs to focus on creating a favorable investment environment to retain foreign capital amid global competition. “We must be ready for US policies that aim to attract capital back home,” he said. It appears that the Chinese government has already started to take proactive steps to buffer against potential impacts. On November 1, China issued revised regulations for foreign investors to invest in listed companies, expanding eligibility criteria and lowering financing requirements to attract foreign capital.　

“China is still a market brimming with growth potential, continuously releasing dividends from reform and sustainable growth,” Liu Ying remarked, “ensuring that foreign businesses can thrive in China is key.”　

So far, Chinese authorities have refrained from making any direct response to Trump’s policy proposals on China. In a press conference on November 7, Chinese Foreign Ministry spokesperson Mao Ning said that President Xi Jinping has sent a congratulatory message to President-elect Donald Trump. “We do not answer hypothetical questions. But broadly speaking, let me reiterate that there is no winner in a trade war, nor will the world benefit from it,” Mao said.　

“China’s position on its relations with the US is consistent. We always view and handle bilateral relations under the principles of mutual respect, peaceful coexistence, and win-win cooperation proposed by President Xi Jinping and work for the stable, healthy, and sustainable development of China-US relations,” Mao added.