China’s worst nightmare would be a second trade war with Trump

China was hit by the trade war with the United States under President Donald Trump, but ended up recoveringBut if Trump wins the White House in November, the second round It will be much harder.

The Republican candidate has assured that would raise tariffs to Chinese imports by up to 60% or more if he wins this year’s presidential election. The economic damage to China would be much more pronounced than in Trump’s first term because tariffs would be higher and the Chinese economy is now much more vulnerable. Trump “is going to put pressure on the Chinese economy” until it deflates“said Matthew Gertken, chief geopolitical strategist at BCA Research. “They are more vulnerable.”

The trade war erupted in 2018, when Trump imposed tariffs of up to 25% on $350 billion of imports from China — 65% of the 2018 total — including solar panels, washing machines, steel and aluminum. China retaliated with tariffs of its own on American products. Most economists say China bore the brunt of that trade war, but the effect did not last. Its exports recovered strongly during the pandemicas Western consumers gorged themselves on consumer electronics and other household conveniences.

Since then, Chinese exporters have found new marketshelped by state support and low prices. China’s surplus in goods trade hit a monthly record of almost $100 billion in June, boosted by exports to the European Union and Southeast Asia.

Except in exports, China is failing

Rising exports are a bright spot in an otherwise struggling economy. is in a delicate situationThe housing crisis has been going on for three years now. Chinese consumers, overwhelmed by the housing crisis and the trauma of the pandemic, are keeping their wallets under control. Local government finances are under severe pressure and private sector confidence is weakening. is on the ground. This dependence on industry and exports makes China much more sensitive to an escalation of the trade war between the two countries. Patrick Zweifel, chief economist at Pictet Asset Management, estimates that if a Kamala Harris presidency were to stick to the Biden administration’s more selective tariff policy, it could perhaps cut 0.03 percentage points of Chinese economic growth next year.

If the are increased tariffs up to 60% on all Chinese goods, as Trump has proposed, the impact would be much larger, perhaps 1.4 percentage points, which he projects would reduce growth in 2025 to about 3.4% from the 4.8% projected. UBS estimates that 60% tariffs on US imports of Chinese goods would slow GDP growth by about 2.5 percentage points in the 12 months after imposition, though the drag could be as little as 1.5 percentage points if China takes compensatory measures.

Rising exports are a bright spot in an otherwise fragile economy

Some of those measures could include Chinese policymakers letting their currency weaken further, extending tax cuts and other benefits for exporters, and cutting interest rates. They could try to force the U.S. to reconsider its stance by retaliating, for example, by raising tariffs on U.S. products, withholding supplies of essential minerals and possibly selling U.S. assets such as Treasury bonds, according to Goldman Sachs.

Studies published by universities in China and Stanford University concluded that first round of tariffs Trump’s economic downturn not only hurt exports, but also reduced corporate profits, affected business and consumer confidence, and slowed investment and hiring. Economists say those effects would be repeated and would amplify this time, as Trump would impose tariffs on all Chinese imports.

Other countries also pose obstacles

Chinese companies’ profits are being pressured by weak demand and chronic oversupply. Producer prices have been falling for almost two years. A company operating on a 5% or 6% profit margin is struggling to make ends meet. could not withstand tariffs of 60%said Nick Borst, director of China research at Seafarer Capital Partners, a California asset manager focused on emerging markets.

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Since 2018, China has reoriented some exports away from the United States and is selling more to developing economies. With the U.S. market effectively closed by a 60% tariff, China would be forced to to sell even more to those other marketsBut some, such as India, Brazil and Mexico, are now opposed to Chinese imports, concerned about domestic jobs and industry.

“If China is locked out of the US market, it will have to target its products more aggressively elsewhere. And those elsewhere may not tolerate that,” said Adam Slater, chief economist at Oxford Economics. China could ease these tensions by building factories abroad to supply local markets. However, Chinese leaders have mixed feelings about overseas expansion, Borst said, given that it would potentially involve a reduction in employment in the industrial sector of their country.

*Content licensed by The Wall Street Journal. Translated by Federico Caraballo