The impact of Trump’s presidency on the Chinese economy will be enormous.
Currently, China’s domestic demand is close to collapse and can only be supported by the international market, so high tariffs are lethal to the Chinese economy.
After China’s accession to the World Trade Organization in 2001, it became the world’s factory, with rapid growth in processing trade. The average annual export growth was 1.5 times that of GDP growth, and exports have been the fastest-moving of the “three engines” of the Chinese economy.
According to estimates, China’s current share of international market exports is 14.7%, ranking first globally for 14 consecutive years.
According to World Bank data, in 2006, China’s exports accounted for as high as 36% of GDP. However, by 2009, it had dropped to 24.5%. In 2018, exports as a percentage of GDP stabilized around 19%, and in 2023, it was approximately 19.74%.
In 2023, China’s total import and export value reached 41.76 trillion yuan, with exports of 23.77 trillion yuan, a 0.6% increase.
The Chinese government claims that in 2023, GDP reached 126 trillion. From the perspective of demand, the three engines driving the Chinese economy are exports, consumption, and investment. Based on various indications reflecting the public sentiment, Chinese consumption and investment have seen a steep decline, relying heavily on exports. Therefore, it is estimated that the share of exports in GDP in 2024 will exceed the 36% seen in 2006.
If the United States and other countries adopt high tariff policies, it will deal a fatal blow to the Chinese economy, potentially leading to its collapse in the coming years.
During Trump’s previous term, he began imposing tariffs on China. In March 2018, Trump announced significant tariffs on imports from China. In July and August 2018, the U.S. imposed 25% tariffs on $500 billion worth of goods imported from China. In September 2018, the U.S. issued a 10% tariff on $200 billion of Chinese goods. China retaliated by imposing tariffs on $60 billion worth of U.S. goods. The U.S. has now imposed tariffs on around $370 billion worth of Chinese goods. Since 2021, the Biden administration has not only continued these tariff measures but also aims to “decouple” and “de-risk” from China, creating a protectionist environment and engaging in “shore-to-shore outsourcing.”
However, in recent years, China’s exports to the United States have continued to grow.
From 2017 to 2020, China’s exports to the United States remained around $450 billion, reaching over $570 billion in 2021 and $580 billion in 2022. The total exports to the United States in 2023 amounted to $500 billion.
It is expected that China’s exports to the U.S. in the whole of 2024 will exceed $500 billion. In the first ten months of 2024, the total trade value between China and the U.S. stood at 4.01 trillion yuan, equivalent to about $550 billion, showing a 4.4% increase, accounting for 11.1%. While exports to the U.S. increased by 4.9%, imports from the U.S. rose by 2.9%, resulting in a trade surplus of 2.07 trillion yuan with the U.S., nearly $300 billion, expanding by 5.8%.
In this election, Trump has taken a strong stance against the Chinese Communist Party, claiming to impose the “highest tariffs in history” on imported Chinese goods.
After taking office, Trump’s initial measures might include revoking China’s most-favored-nation treatment, levying a 60% tariff, and imposing even higher tariffs on electric cars produced by Chinese companies in Mexico for export to the U.S. Machinery and electronic equipment, such as mobile phones, computers, and lithium batteries, which account for over 40% of China’s exports, are expected to be significantly affected by these measures.
The profits from these products are unlikely to exceed 60%, so imposing a 60% tariff means that direct exports from China to the U.S. would be severely limited. However, given the current high inflation in the U.S., consumer goods may not necessarily face such high tariffs. Overall, China’s exports to the U.S. are expected to be severely impacted.
The decline in foreign trade volumes will have a significant impact on Chinese employment, income, and consumption.
In 2024, there were over 600,000 foreign trade-operating enterprises with records of imports and exports. Of these, private enterprises accounted for 556,000, with a total import and export value of 22.36 trillion yuan, representing 53.5% of the total imports and exports. State-owned enterprises had an import and export value of 6.68 trillion yuan, accounting for 16%.
Data shows that in 2021, China’s foreign trade drove employment numbers to reach 180 million people.
If China’s foreign trade volume were to drop by 30%, it is estimated that the corresponding increase in unemployment would reach 60 million people.
Furthermore, many Chinese companies may invest overseas to avoid high tariffs, which will inevitably affect domestic employment. Foreign companies, including those from Europe, the United States, Taiwan, and others, might also relocate to avoid high tariffs. In 2023, foreign-invested enterprises’ import and export values reached 12.61 trillion yuan, accounting for 30.2% of China’s total imports and exports. Once foreign-invested enterprises withdraw, China’s imports and exports will face a significant impact, affecting the employment and income of millions of people.
All of these factors will further damage Chinese consumption and investment, severely impacting the Chinese Communist economy.
Secondly, Trump’s high tariff policy will have a significant impact on the Chinese yuan exchange rate.
After Trump won on November 6, a massive global currency market upheaval occurred as the U.S. election dust settled.
The U.S. dollar surged, with the U.S. Dollar Index rising more than 1.8% in a single day. Non-U.S. currencies around the globe faced significant devaluation pressure, with the Mexican peso leading the decline, falling by over 2% against the U.S. dollar to a two-year low.
The impact on the offshore yuan exchange rate was almost simultaneous. On November 6, the U.S. dollar against the offshore yuan exchange rate was recorded at 7.1765, reaching a daily low of 7.0907, with an exceptionally rare maximum fluctuation exceeding 950 basis points.
If Trump imposes a 60% tariff, it could lead to a 10% overall decline in China’s exports. To counter this export decline, China may push for a devaluation of the yuan by 5%-10% to address the overall export downturn. However, the U.S. might also view this as currency manipulation. Regardless, to boost exports, the yuan is likely to depreciate. Goldman Sachs predicts the yuan could depreciate to around 8.0.
China’s currency is non-market-based, as international currencies cannot freely enter and leave China, allowing the government to control the exchange rate.
In the U.S. and many other developed countries, markets determine currency values, with indirect impacts on their worth. For instance, the Federal Reserve influences the strength or weakness of the U.S. dollar by adjusting interest rates.
In China, officials set a daily benchmark exchange rate for the yuan and allow traders to fluctuate within a certain range. They then determine the following day’s yuan exchange rate based on trading activities, and the details of this operation remain largely hidden from the public.
A continued depreciation of the yuan may have a more significant impact on the global economy.
A devalued yuan will cause losses for U.S. exporters and weaken the effectiveness of Trump’s tariffs. It will also affect exporters in Europe, Japan, and other regions. Additionally, it will bring pressure for currency devaluation to countries like South Korea and Taiwan, which compete in similar industries, potentially disrupting trade and investment flows.
The Chinese government is likely to implement a series of monetary and fiscal policies to cope with the high U.S. tariffs.
With Trump taking office, the Fed’s rate-cutting pace may accelerate. If the U.S. adopts a policy of low-interest rates, high tariffs, and low tax rates, China is likely to intensify its monetary and fiscal stimulus. In the short term, this may stimulate the economy to some extent. However, in the long term, it could lead to serious inflation in China.
For the Chinese real estate and stock markets, the situation could further deteriorate.
Trump’s tariffs will impact foreign trade, particularly affecting Guangdong and Shenzhen. These two regions heavily rely on foreign trade, making the impact of declining exports more significant. Consequently, the income of industry personnel will be affected, influencing housing prices. The domestic rollout of the trillion-yuan real estate collection and storage plan may provide some support to the real estate sector. However, in the long term, due to the sharp decline in China’s birth rate and accelerated population aging due to the one-child policy, the future demand for real estate in China will weaken further.
Following China’s massive monetary stimulus, the stock market is likely to surge in the short term. However, if Trump’s policies severely damage the Chinese economy, the stock market will collapse as a result. Trump’s policy aims to rebuild industries in the U.S., reducing reliance on Chinese manufacturing in areas such as transportation, energy, technology, and high-end manufacturing. China’s corresponding high-end manufacturing industry will likely suffer long-term impacts.
Furthermore, the U.S. will withdraw from climate agreements, increase oil production, reduce oil prices, and lower inflation.
The U.S. will continue to enforce stricter technical embargoes and technology blocks, making it challenging for China to continue Intellectual Property theft from the U.S. related high-tech industries will also be severely affected.
With Trump in office, he is likely to resolve the situation in the Ukraine-Russia conflict promptly, while China may be deterred from provoking conflicts by fear of Trump’s influence. The world may become slightly more peaceful.
This article was originally sourced from Clean World’s video link above.