China's Economic Crossroads: The Looming Threat of a Second Trade War with Trump
As China begins to recover from the first trade war, a second round under Trump could deal a much harsher blow.
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기사입력 : 2024.08.11 21:56
China, still reeling from the economic impact of its trade war with the U.S. under President Donald Trump, is beginning to see signs of recovery. However, the prospect of a second trade war looms large as Trump threatens even more severe tariffs should he return to the White House in November. If this happens, the economic fallout for China could be far worse than before.
Trump has vowed to escalate the trade conflict by raising tariffs on Chinese imports to 60% or more if he wins the upcoming presidential election. Such a move would strike at a time when China's economy is more vulnerable than it was during Trump's first term. "Trump will put a crimp in the neck of the Chinese economy," warns Matthew Gertken, chief geopolitical strategist at BCA Research. "They are more vulnerable now."
The initial trade war, which erupted in 2018, saw Trump impose tariffs of up to 25% on $350 billion worth of Chinese goods, covering 65% of imports from China that year. In retaliation, China placed its own tariffs on U.S. products. While most economists agree that China bore the brunt of the economic pain, its exports managed a strong rebound during the pandemic, driven by Western consumers' demand for electronics and home goods.
Supported by government policies and competitive pricing, Chinese exporters found new markets, leading to a record goods trade surplus in June of nearly $100 billion.
Yet, this export success stands in contrast to the broader struggles facing China's economy. An ongoing property crisis, cautious consumer spending, and strained local government finances have left the private sector in a slump.
China's heavy reliance on manufacturing and exports now makes it particularly susceptible to another round of trade hostilities.
Patrick Zweifel, chief economist at Pictet Asset Management, suggests that if Kamala Harris were to continue Biden's more selective tariff strategy, it might only slightly dent China's economic growth. However, under Trump's proposed 60% tariffs, the damage would be far more severe, potentially slashing growth in 2025 by 1.4 percentage points, bringing it down to about 3.4% from the anticipated 4.8%.
UBS analysts estimate that these tariffs could curb China's GDP growth by as much as 2.5 percentage points within a year of their implementation, though the impact could be lessened to around 1.5 points if China employs countermeasures.
In response, Chinese policymakers might consider allowing their currency to weaken, providing further tax incentives to exporters, or cutting interest rates. They could also retaliate with their own tariffs on U.S. goods, restrict supplies of critical minerals, or even liquidate U.S. assets like Treasury bonds, as Goldman Sachs speculates.
The effects of Trump's first round of tariffs were significant, squeezing corporate profits, depressing consumer and business confidence, and curbing investment. These impacts are expected to be repeated and intensified if a second trade war begins, particularly as Trump's new tariffs would apply to all Chinese imports.
Chinese companies are already under pressure, with profits being squeezed by weak demand and persistent oversupply. Producer prices have been falling for nearly two years, and as Nick Borst, director of China research at Seafarer Capital Partners, points out, companies with thin profit margins would be unable to absorb the blow of 60% tariffs.
As China stands at this economic crossroads, the potential for a renewed trade conflict with the U.S. under Trump could pose a significant challenge to its recovery and future growth.
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