Will Trump Attack China’s Economy ‘Fast and Furious’? | Economy

The prospect of former President Donald Trump winning a second term has raised concerns among economists and China watchers, who are planning for the potential consequences for the world’s second-largest economy if the scenario materializes. Trump’s stance on trade could lead to a new, more intense trade war with China, according to Bloomberg.

potential economic impact

Economists at Goldman Sachs estimate that a 60% US tariff on Chinese goods could reduce China’s GDP by about two percentage points.

Similarly, economists at UBS expect China’s growth to fall by 2.5 percentage points over the course of a year. This poses a major threat to economic stability in China, which is already grappling with challenges on a variety of fronts.

Trump’s choice of J.D. Vance, a far-right US senator known for his anti-China rhetoric, as his vice president has exacerbated concerns about an aggressive trade policy, the agency said.

Sara Bianchi, chief international policy strategist at Evercore, told Bloomberg that tariff increases and other measures will come “fast and furious” if Trump defeats President Joe Biden.

Historical context

Trump’s first trade war in 2018 didn’t have as severe an impact on the U.S. as many expected, according to Bloomberg. There was no significant spike in inflation, and no major hit to employment or financial markets.

That has led some in Washington to believe the U.S. can afford another round of tariffs without significant economic damage, Yanmei Xie of Gavekal Research told Bloomberg.

The agency notes that Trump’s pledge to make more tax cuts will push Republicans to look for alternative sources of revenue. Tariffs provide a viable option.

To appear tougher on China, Republicans may push for tougher action, argue Tobin Marcus and Zhuotong Zhu of Wolf Research.

Wider implications

A significant increase in tariffs could lead to a “hard decoupling” of the United States and China, which would accelerate the fragmentation of the global economy into distinct blocs, the International Monetary Fund has warned, according to Bloomberg.

Such tariffs could cause bilateral trade to collapse to $100 billion or less, a significant drop from the $575 billion recorded last year, said Da Wei, an expert on Sino-U.S. relations at Tsinghua University in Beijing.

Tariffs as a Negotiation Tool

Trump claimed that tariffs provide significant leverage in negotiations, suggesting that some form of deal may be possible.

However, reaching such an agreement would pose several operational challenges, according to strategists at Goldman Sachs.

In his speech to the Republican National Convention, Trump indicated that he would encourage Chinese companies to establish operations in the United States.

“The way they’re going to sell their products in America is to make them in America, plain and simple,” he said.

This approach echoes the 1990s strategy in which Japanese automakers moved production to the United States to avoid tariffs, although its success in the current geopolitical climate remains uncertain.