Experts say Trump’s threatened tariffs on China could help Beijing weather the economic storm

Hong Kong – President-elect Donald Trump has threatened to raise tariffs of up to 60% on all goods exported to the US from China. While that may sound like a strong economic threat to a country where economic growth is stagnating, could it actually be just what China needs?

“I expect the US-China economic relationship to be more unstable under Trump, but I think, this may be better for China,” Chen Zhiwu, senior professor of finance at the University of Hong Kong and former professor at the University of Hong Kong. Yale University, he told CBS News.

Chen said that if Trump follows through on his threat of such high tariffs on China, “it may force the leadership in Beijing to have no choice but to focus on the economy – especially since China’s economy is currently in deep trouble. .”

Since Trump’s first term in the White House, and during President Biden’s tenure, China’s economic growth has slowed from about 7% to 4.5%. The country’s real estate market has collapsed due to overbuilding, leading to an increase in empty cities. Youth unemployment rose to a record high of nearly 19% in September, dimming prospects for China’s future workforce.

Beijing’s massive focus over the past decade has continued to strengthen its army meeting its national ambitions to compete with the US and its European and Asia-Pacific allies has sacrificed opportunities for domestic economic growth, Chen said.

“If you count the number of warships, China has the highest number of warships of any country, more than the US Navy. What industries have grown the most so far this year? Definitely those war-related industries have gone up a lot, but those consumer-oriented industries they had no growth or poor growth,” he said.

Most of China’s top 20 aerospace and defense stocks have recorded double-digit growth in the past year alone.

Tariffs “a good thing for China in the long run”?

“The pressure the US is putting on China will be a good thing for China in the long run,” agreed Wang Xiangwei, former editor-in-chief of Hong Kong’s South China Morning Post.

China has relied on two main engines to support rapid economic growth over the past 40 years, since former leader Deng Xiaoping began reforms and began opening up the country, Wang told CBS News. Those have been producing cheap imports for the world using cheap Chinese labor for a long time, and later, spending billions on domestic infrastructure including roads, railways and airports.

But labor is becoming more expensive due to China’s booming middle-class population, and the government is running out of new things to build across the country.

Beijing has found it difficult, on the other hand, to revive a third potential engine of economic growth: The ability of the country’s 1.3 billion people to consume home-made products.

Trump’s threatened tariffs could provide the impetus needed to change that, Wang said.

“I believe that China will suffer in the short term. In the long term, it is [Trump] will help China make that painful transition,” Wang said, noting that in the US, domestic consumption accounts for 70% to 80% of national GDP, while in China, “it’s only about 60%.”

In fact, pushing the Chinese people themselves to buy more of their country’s goods and services, in the opinion of the two analysts, would be Beijing’s best defense against Trump’s threat.

“The best tool would be to encourage consumption growth within China,” Chen said. “Right now, the leadership is not really trying to help Chinese consumers by sending them government checks and even tax costs on companies. I think if the Chinese government moves in a more aggressive way, it would help the Chinese economy to generate more domestic demand for domestic consumption to replace some of the potential lost exports to the US.”

Beijing needs Washington, but tariffs can have a serious impact

During Trump’s first term as president, he imposed tariffs ranging from 10% to 25% on Chinese agricultural products exported to the US, including seafood, pork and milk. Beijing retaliated with its tariffs, starting a trade war between the world’s two largest economies.

Almost eight years later, however, Beijing seems unable to fight such a war, given its economic ties to the US.

“As for China’s choice of retaliation, it is very small,” Chen said. “China imports a lot of agricultural products such as soybeans, corn. They may try to import such agricultural products from Brazil, and from Russia as one of their ways to retaliate against the US. But at the end of the day, China imports so much. [computer] chips from Nvidia, Intel, especially Qualcomm,” Wang said. “Those products need China. Therefore, China cannot produce domestically.”

In fact, if Beijing imposes retaliatory tariffs, it may be shooting itself in the foot. Tariffs will make all those products, essential to China’s continued economic and technological development, more expensive for its people.

But one potential effect of Trump’s expected protectionist policies could actually be to push some of America’s old allies and trading partners closer to China, to reverse the so-called dismantling of the US economy and Western Europe from Beijing that Washington has pressed under Mr. Biden.

“The Biden administration has done a very good job of putting that together,” Chen said. “If Trump makes the member states of the EU and NATO angry, that makes it easier for Germany, France or Italy or the UK to warm up more to China on trade. So, that can help reduce, to some extent, the negative impact of the costs Trump’s expectations on Chinese goods.”

Trump did it he said over and over again that foreign companies will foot the bill, effectively absorbing the additional costs of shipping to the US market imposed by his tariffs, but many economists disagree, and say it was effectively a tax on American consumers.

According to results released by the National Retail Federation last week, American consumers could lose between $46 billion and $78 billion a year on everything from clothes and toys to home appliances and travel goods if there is a 60% tariff on Chinese goods. .

“Retailers rely heavily on imported products and manufacturing facilities to be able to offer their customers a variety of products at affordable prices,” said NRF Vice President of Supply Chain and Customs Policy Jonathan Gold. “A tax is a tax paid by the American consumer, not a foreign country or shipper. This tax ultimately comes out of the consumer’s pocket at higher prices.”

All that said, and despite Trump’s history of speaking out against China, it’s not clear how quickly his administration would roll out tariffs, with some economists speculating that the president-elect plans, initially, to use a threat of additional levies as a way to negotiate more favorable trade terms with Beijing. Trump could also choose to gradually impose tariffs, delaying their full impact on China’s economy.

Will China attack Taiwan, and will Trump save it?

Trump’s return to the White House could help Beijing advance its interests with Taiwan, a democratic island of 23 million people off China’s east coast that the country considers a renegade province. President Xi Jinping has vowed to bring Taiwan back under Beijing’s control, by force if necessary.

Since the US government enacted the Taiwan Relations Act in 1979, the US has made strategic commitments to help defend Taiwan in the event of aggression, including selling arms to the island’s government.

It is open to interpretation, however, and has been deliberately left unclear in US law, as to whether Washington is obligated to directly defend Taiwan, using US military power, if it is attacked.

President Biden, in his first term, said Washington would break a long-standing policy of “strategic ambiguity” that the Biden White House had backed away from.

“Sovereignty over Taiwan is the red line of all red lines,” Wang told CBS News. “Trump, in his presidential campaign speech, made it clear… [that he’s] it is unlikely that he will send troops to defend Taiwan.”

“I believe that China will not attack Taiwan soon,” Wang added, noting that Beijing “has many problems that will have to be solved at home.”

If Beijing were to attack Taiwan, the fallout would be felt around the world.

“That would have a negative impact on the global economy,” Chen said. “I hope it won’t happen. So, maybe now, given the challenges with the Chinese economy, the leadership realizes that without a stable economy, all their global ambitions will have no economic basis.”

Alain Sherter contributed to this report.