Economic Uncertainty Looms as Trump’s Victory Raises Stakes for China’s Fiscal Stimulus
As Donald Trump secures his second presidential term, China’s economic fate hangs in the balance. With threats of increased tariffs on Chinese goods sold to the US, Beijing is under pressure to introduce significant fiscal stimulus measures to counter the potential economic downturn.
Tariffs’ Devastating Impact on China’s Economy
A 60% tariff hike could reduce China’s exports by a staggering $200 billion, resulting in a 1 percentage point drag on GDP. This comes at a critical time for China, which is already struggling with a real estate slump and tepid consumer spending.
Fiscal Stimulus Package on the Horizon
In response to the looming “Trump shocks,” the Chinese government is expected to introduce a stimulus package exceeding 10 trillion yuan ($1.39 billion). This package will likely focus on local government debt swaps, bank recapitalization, and supporting real estate through special bonds.
Stock Market Reactions
As news of Trump’s victory spread, mainland China and Hong Kong stocks plummeted, while US stocks soared to record highs. This divergence in stock performance suggests that China’s stimulus package will be slightly larger than initially anticipated.
Uncertainties Ahead
Despite the expected stimulus, uncertainties surrounding Trump’s actions and the ongoing trade tensions between the US and China cast a shadow over the global economy. The Republican Party’s majority in the Senate may accelerate protectionist measures, amplifying downside risks.
Tech Restrictions and Export Controls
The US has already imposed restrictions on tech and investment, which have a greater impact on China. Trump’s administration may further limit US sales of advanced semiconductors to China, pressuring allies to follow suit.
China’s Response
Beijing has doubled down on bolstering its own tech industry, encouraging bank loans to high-end manufacturing. However, the country still relies heavily on US capital, software, and high-end parts.
Global Trade Implications
China’s exports have shifted to markets outside the US, with the country representing over 25% of ASEAN imports. While China has lost market share in the US, it has gained in other regions.
As the world waits with bated breath, China’s response to Trump’s victory will have far-reaching implications for the global economy. Will Beijing’s stimulus package be enough to counter the potential economic downturn, or will the trade tensions between the US and China continue to escalate? Only time will tell.
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