Politics
Why a trade war with Trump threatens China's ruin
China is already grappling with a deeper slowdown. Since 2010, its GDP growth rate has more than halved, from 10.6% to 4.8%, according to figures from the International Monetary Fund (IMF). The IMF expects China's economy to grow just 4.5% next year, well below President Xi's 5% target.
Since real estate giant Evergrande collapsed at the end of 2021 with a debt of more than $300 billion, China has been grappling with a severe real estate downturn that has weighed heavily on consumers' purchasing power. Since 2019, home sales have plunged 45%, a decline of about RMB 5 trillion (RMB 550 billion) when measured by transactions, Wrigley says.
The housing slowdown weighed on consumer spending. In response, Chinese producers cut prices and exported their surplus goods abroad. As a result, China's global trade surplus (the amount by which its exports exceed its imports) has exploded, doubling to more than $800 billion since 2019.
Tariffs threaten to make all of these underlying problems worse. China's economy will not collapse, but parts of the country, notably industrial centers in coastal provinces like Suzhou, near Shanghai, will be hit.
What is worrying for Beijing is that Trump will also wage a multi-front trade war.
Trump will encourage decoupling more generally, says Alicia Garcia Herrero, chief Asia-Pacific economist at French investment bank Natixis. Herrero, who is based in Hong Kong, expects export controls, restrictions on science and technology trade and pressure to repatriate profits.
All of this can be even more negative than tariffs.
How might President Xi respond? Because China has a trade surplus with the United States, it has less leeway to impose retaliatory tariffs on American products.
The truth is that China is running out of products on which to impose retaliatory tariffs, because China doesn't import as much from the United States as the United States imports from China, Chor says.
China is likely to devalue the renminbi to offset the burden of tariffs by making its products cheaper to export, says Simon Johnson, a professor at MIT and former chief economist at the IMF.
I think the Chinese will let their currency depreciate considerably, he said.
However, this will lead to higher inflation in the country and deal a blow to President Xi's hopes of the renminbi becoming a safe-haven global reserve currency.
Beyond state intervention, Chinese companies are also likely to move jobs and investment out of the country to avoid tariffs.
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Sources 2/ https://www.telegraph.co.uk/business/2024/11/25/how-trumps-tariffs-could-devastate-china/ The mention sources can contact us to remove/changing this article |
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