MNI: China Domestic Stimulus Needed To Counter Trump-Advisors

- MNI (BEIJING) - Beijing will intensify efforts to stimulate domestic demand should U.S. President-elect Trump impose higher tariffs after taking office, while accelerating free-trade negotiations with other partners particularly among the BRICS, policy advisors told MNI.

Chinese leaders will move to stimulate internal demand if Trump’s win leads to a worsening of China’s export sector, said Huo Jianguo, former head of the Chinese Academy of International Trade and Economic Cooperation run by the Ministry of Commerce, predicting the additional fiscal measures would reach more than CNY10 trillion. (See MNI INTERVIEW2: China Fiscal Stimulus Seen Near 10% GDP)

The Trump administration will likely revoke China’s most-favoured nation (MFN) status, meaning the average tariff rate on imports from China would increase from 19% to 32%, he noted, estimating an around USD100 billion loss in export volume.

Wang Dong, professor and executive director of the Institute for Global Cooperation and Understanding, noted a Republican-controlled congress would make it easier to resume economic action against Beijing and other countries, including potentially placing 60% tariffs on Chinese goods.

A 60% tariff across the board would likely decimate Chins's export to the U.S. in the short run, said Zhou Xiaoming, researcher at a Beijing think-tank and a former deputy representative to China’s United Nations mission in Geneva, adding that Washington currently provided 16% of Beijing’s total external demand.

“This makes finding alternative markets difficult in the short term,” Zhou continued.

In mitigation, the government is likely to implement additional fiscal and monetary policies by the end of this year or early 2025 aimed at increasing consumption and reducing local governments’ debt burden, as well as providing support for the real estate sector, Zhou added. (See MNI: China Property To Stabilise Within A Year - Experts)

TARIFFS

Professor Wang Yiwei, vice president at the Academy of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, said tariff hikes to 60% were probable given previous Trump comments, but revoking MFN remained less likely given the significant turmoil it would cause to the U.S.’s market-based economy.

U.S. economic action against China may involve using Bitcoin and other digital currencies, as well as monetary policy, Wang Yiwei continued.

The fact Trump planned competition with China in advanced manufacturing and digital technology meant Beijing will also strengthen its domestic industrial policy, Wang Yiwei noted.

Rising trade tensions with Washington would probably encourage China to speed up free trade negotiations, especially with BRICS countries like Brazil and South Africa, said Zhou, who added policies to rebuild supply chains were also required. 

“Should Trump weaken Washington’s alliances, this could create space for closer EU-China cooperation, potentially benefiting Beijing,” Zhou added.

A U.S.-instigated trade war against several trading partners would be a fundamental blow to the global multilateral trading system, said Wang Dong.

Wang Yiwei agreed, saying said such action would disrupt relations with key allies and undermine global confidence in Washington, in contrast to Beijing’s plans to continue high-level opening-up.

DEAL

Initially, Trump will likely want a resumption of 2020’s "Phase One" agreement which committed China to purchasing USD200 billion U.S. goods and services over 2020 and 2021, but was halted during the Covid pandemic, Huo said.

However, Wang Dong said grievances formed on both sides during the deal’s negotiation would make it difficult to restart the arrangement quickly, though a restart could not be ruled out. 

Trump may be more concerned with domestic gripes against internal opponents during the initial phase of this administration, Wang Yiwei continued, but his attention may turn to China after the midterm elections two years from now. 

MUSK

Although competition between the two superpowers was inevitable, the emergence of Elon Musk, CEO of Tesla and SpaceX, as a close Trump aid, increased the potential for economic integration, given the entrepreneur’s strong business interests in both countries, Wang Yiwei said.

However, Musk’s position would become complicated should he enlarge his share of U.S. government defence contracts through Starlink or electric vehicles, putting him at odds with Beijing.

The extent to which Musk can play a constructive role between Chinese officials and Trump was uncertain that given such positions would antagonise hawkish advisors such as Robert Lighthizer and Peter Navarro, Wang Dong said.