Trump’s victory and the threat of more tariffs are raising expectations for more Chinese stimulus

BEIJING – Donald Trump’s 2024 presidential victory has raised the bar for China’s fiscal stimulus plans, expected Friday.

During the campaign, Trump threatened to impose additional tariffs of 60% or more on Chinese goods sold to the US. Increased tariffs of at least 10% during Trump’s first term as president had no impact on America’s position as China’s largest trading partner.

But new tariffs – possibly on a larger scale – would come at a crucial time for China. The country is relying more on exports for its growth as it faces a real estate crisis and tepid consumer spending.

If Trump raises tariffs to 60%, it could reduce Chinese exports by $200 billion, dragging down GDP by 1 percentage point, Zhu Baoliang, a former chief economist at China’s economic planning agency, said at a Citigroup conference.

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 this week, which ends Friday.

“In response to possible ‘Trump shocks’, the Chinese government is likely to implement larger stimulus measures,” said Yue Su, chief economist at the Economist Intelligence Unit. “The overlap of the NPC meeting with the US election results suggests the government is prepared to take swift action.”

She expects a stimulus package of more than 10 trillion yuan ($1.39 billion), of which about 6 trillion yuan will go to local government debt swaps and bank recapitalization. More than 4 trillion yuan will likely go to local government special bonds to support real estate, Su said. She did not indicate over what period.

Stocks in mainland China and Hong Kong fell on Wednesday after it became clear that Trump would win the election. US stocks then rose, with the three major indexes hitting record highs. In Thursday morning trading, Chinese stocks tried to hold on to mild gains.

That difference in stock performance suggests that China’s stimulus will be “slightly larger than the base case,” said Liqian Ren, who leads WisdomTree’s quantitative investment capabilities. She estimates that Beijing will add about 2 to 3 trillion yuan in aid annually.

Ren does not expect significantly greater support because of the uncertainties about how Trump might act. She pointed out that tariffs harm both countries, but restrictions on technology and investment have a greater impact on China.

Trump, during his first term as president, placed Chinese telecommunications giant Huawei on a blacklist that banned the company from using American suppliers. The Biden administration expanded on these moves by restricting U.S. sales of advanced semiconductors to China and pressuring allies to do the same.

Both Democrats and Republicans supported the passage of these newer export controls and efforts to boost investment in the U.S. semiconductor industry, Chris Miller, author of “Chip War,” pointed out earlier this year. He expected the US to tighten such restrictions regardless of who wins the election.

China has doubled down on its own technology by encouraging bank loans to high-end manufacturing companies. But the country had long benefited from American capital and the ability to use American software and high-quality components.

According to Republicans, they will gain a majority in the Senate in the next two years NBC News projectionsalthough control of the House of Representatives remains unclear.

“If the Republican Party gains control of Congress, protectionist measures could be accelerated, exacerbating the impact on the global economy and posing significant downside risks,” Su said.

She expects that Trump is likely to impose such tariffs in the first half of next year, and that he could speed up the process by invoking the International Emergency Act for Economic Powers or Section 122 of the Commerce Act of 1974, which allows the President to impose tariffs up to 15% in response to a serious balance of payments deficit.

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

Su estimated that a 10% tariff increase on Chinese exports to the US could reduce Beijing’s real GDP growth by an average of 0.3 to 0.4 percentage points over the next two years, assuming other factors remain constant.

According to customs data on Wind Information, Chinese exports to the US fell 14% last year to $500.29 billion. That’s still up from $385.08 billion in 2016, before Trump was sworn in for his first term.

Meanwhile, China’s annual imports from the US rose to $164.16 billion in 2023 from $134.4 billion in 2016, Chinese data showed.

Other analysts believe Beijing will remain conservative and trickle down stimulus measures in the coming months rather than releasing a major package on Friday.

China’s top leaders typically meet in mid-December to discuss economic plans for the coming year. Officials would then announce the growth target for the year at an annual parliamentary meeting in March.

“China will likely face much higher tariffs from the US next year. I expect China’s policy response will also happen next year if higher tariffs are imposed,” Zhiwei Zhang, chief economist at Pinpoint Asset Management, said in a note Wednesday afternoon.

“I also don’t think the government will change the policies it has already proposed to the NPC because of the US elections,” he said.

Regardless of the tariffs, China remains an export power to markets outside the US

“China’s exports have indeed shifted somewhat in terms of destination in recent years, with the US accounting for less than 15% of total Chinese exports in 2023, compared to an average of almost 18% in the 2010s,” said Françoise Huang, senior economist. for Asia-Pacific and global trade at Allianz Trade, said in September.

“While China has lost market share in the US, it is clearly gaining in other places,” she said. “For example, China now represents more than 25% of ASEAN imports, compared to less than 18% in the 2010s.”

Chinese exports have also grown to countries that sell to the US, according to a report from the Federal Reserve in August.

— CNBC’s Dylan Butts contributed to this report.