HONG KONG — Trade cheat, currency manipulator, jobs thief — those are just some of the many criticisms Trump has lobbed at China over the last 18 months on the campaign trail. But out of all of those threats made against the rival Asian world power, experts believe implementing a tariff seems to be the most likely and credible.
Although Trump’s actual trade policies will be made more clear as inauguration day nears on January 20, Daiwa Capital Markets economists Kevin Lai and Olivia Xia worked out what would happen if the president-elect makes good on his campaign pledge to implement a tariff of 45 percent on Chinese goods. The increase from an existing 4.2 percent tax would propel a 4.8 percent drop in GDP for China, the firm predicted, a loss that “would be staggering.” For comparison, Beijing reported third quarter national GDP growth of 6.7 percent.
Lai and Xia explained: “Our analysis shows that imposing a 45 percent tariff on China would lead to a $420 billion, or 87 percent, decline in exports from China to the U.S. on an annual basis. Domestic content for each unit of exports is about 67.8 percent, based on the OECD-WTO’s estimates for 2011. This would translate into a $285 billion, or 2.62 percent, loss of GDP.”
But because of its multiplier effect — about 1.84 times — on jobs, consumption and investment, they estimate the ultimate impact of a tariff would be a 4.8 percent drop in GDP.
China could retaliate with a similar levy but the U.S. exports only $116 billion to China a year, which is about a quarter of what the Asian nation exports to the U.S.
The report also predicts that under a 45 percent tariff, China’s total exports would decline by 18 percent.
Trump may not be able to get such dramatic legislation through Congress but even a lower tariff at 15 percent or 30 percent would mean a GDP drop for China of 1.75 percent and 3.81 percent respectively, Daiwa said.
“If Trump follows through on his campaign talk of a 45 percent tariff on goods from China, Beijing is likely to hit back,” said Jonathan Fenby, cofounder of Trusted Sources, an Emerging Markets Research and Consulting Firm. “U.S. companies manufacturing and assembling in China would be hit. Exports to the U.S. from China are only half as big a contributor to Chinese GDP as they were 10 years ago, however, so the impact would be more limited.
“For those reasons, it seems unlikely Trump will push his campaign rhetoric but he may have to do something for his electoral base. China would probably like to participate in infrastructure projects through materials or finance. A strong dollar would suit Beijing as it depreciates its currency.”
Benjamin Cavender, principal at China Market Research Group, said, “It will be interesting to see what the first 100 days of Trump’s presidency brings. My guess is that it will have less of an impact than one might think on economic conditions and ties between the two countries. That said, I do think we will see a move by the commerce department to become more aggressive pursuing things like antidumping claims against various Chinese industries, as well as a closer look at the Trans-Pacific Partnership and how it could be manipulated by China. The sense I get, talking with business owners here, is that right now there is a lot of uncertainty about what Trump’s presidency will mean for China, but no one is panicking yet.”