Hong Kong — President-elect Donald Trump has threatened to slap up a tariff of up to 60% on all goods imported to the U.S. from China. While that may sound like a potent economic threat to a country where economic growth is already faltering, could it actually be just what China needs?
“I do expect U.S.-China economic relations to be more volatile under Trump, but I think overall, this may turn out to be better for China,” Chen Zhiwu, the top finance professor at the University of Hong Kong and a former professor at Yale University, told CBS News.
Chen said if Trump does follow through with his threat of such steep tariffs on China, it “might force the leadership in Beijing to have no other choice but to focus on the economy — especially given that the Chinese economy right now is in very big trouble.”
Since the start of Trump’s first term in the White House, and through President Biden’s term, China’s economic growth has slowed from roughly 7% to 4.5%. The country’s property market has crashed because of massive overbuilding, leading to the rise of empty ghost cities. Youth unemployment rocketed to a new high of nearly 19% in September, dimming prospects for China’s future workforce.
Beijing’s intense focus over the past decade on bolstering its military to meet its geopolitical ambition of rivaling the U.S. and its European and Asia-Pacific allies has further sacrificed opportunities for domestic economic growth, said Chen.
“If you count the number of warships, China has by far the highest number of warships than any country, higher than even the U.S.’ naval ships. What industries have grown the most so far this year? Definitely those warfare-related industries have gone up the most, but those consumer-oriented industries have had no growth or negative growth,” he said.
Most of China’s top 20 aerospace and defense stocks have recorded double-digit growth over the past year alone.
Tariffs “a good thing for China for the long term”?
“The pressure the U.S. is putting on China will become a good thing for China for the long term,” agreed Wang Xiangwei, a former editor-in-chief of the Hong Kong-based newspaper South China Morning Post.
China has relied on two primary engines to support rapid economic growth over the past 40 years, since former leader Deng Xiaoping initiated reforms and started opening the country up, Wang told CBS News. Those have been manufacturing cheap exports for the world by leveraging China’s long-cheap labor force, and later, spending billions on domestic infrastructure including roads, rail and airports.
But labor has become more expensive with the rise of China’s booming middle class, and the government is running out of new things to build across the country.
Beijing has found it difficult, meanwhile, to fire up a potential third engine of economic growth: The capacity of the country’s 1.3 billion people to consume domestically made products.
Trump’s threatened tariffs could give a needed external push for that to change, said Wang.
“I believe China’s going to suffer in the short term. In the long term, he’s [Trump] going to help China to make that painful transition,” Wang said, noting that in the U.S., domestic consumption accounts for 70% to 80% of the national GDP, while in China, it’s “only about 60%.”
In effect, pushing China’s own people to buy more of their country’s own goods and services could, in the view of the two analysts, prove to be Beijing’s best protection against Trump’s threatened tariffs.
“The best tool would be to stimulate consumption growth inside China,” said Chen. “At the moment, the leadership has not really tried to help the Chinese consumers by sending them government checks and even tax costs to corporations. I think if the Chinese government really moves in that direction more aggressively, then it would help the Chinese economy generate more internal domestic consumption demand to make up for some of their possible lost exports to the U.S.”
Beijing needs Washington, but tariffs could have a complex impact
During Trump’s first term as president, he imposed tariffs ranging from 10% to 25% on Chinese agricultural products imported to the U.S., including seafood, pork and dairy. Beijing retaliated with its own tariffs, kicking off a trade war between the world’s two biggest economies.
Nearly eight years later, however, Beijing appears less able to wage such a war, due to its close economic links with the U.S.
“In terms of retaliation choices for China, it’s very limited,” said Chen. “China imports a lot of agricultural products like soybeans, corn. They may try to import more such agricultural products from Brazil, and also from Russia as one of their ways to retaliate against the U.S. But at the end of the day, China imports so much [computer] chips from Nvidia, Intel, especially Qualcomm,” Wang said. “Those products are what China needs. So, China cannot produce internally.”
In effect, if Beijing does impose retaliatory tariffs, it could be shooting itself in the proverbial foot. Tariffs would make all those products, vital to China’s continued economic and technological development, more expensive for its own people.
But another possible impact of Trump’s expected protectionist policies could actually be to push some of America’s oldest allies and trade partners closer to China, reversing the so-called decoupling of the U.S. and Western European economies from Beijing that Washington has pushed under Mr. Biden.
“The Biden administration did such a good job to more or less unite that,” said Chen. “If Trump makes the EU and NATO member countries upset, that makes it more possible for Germany, for France or Italy or even the U.K. to warm up more with China on the trade front. So, that may help neutralize, to some extent, the negative impact of the expected Trump tariffs on Chinese goods.”
Trump has claimed repeatedly that foreign companies would foot the bill, effectively absorbing the additional costs of exporting to the U.S. market imposed by his tariffs, but many economists disagree, and say it would effectively be a tax on American consumers.
According to findings released by the National Retail Federation last week, U.S. consumers could lose between $46 billion and $78 billion in spending power per year on everything from clothes and toys to household appliances and travel goods if there is a 60% blanket tariff on Chinese goods.
“Retailers rely heavily on imported products and manufacturing components so that they can offer their customers a variety of products at affordable prices,” NRF Vice President of Supply Chain and Customs Policy Jonathan Gold said. “A tariff is a tax paid by the U.S. importer, not a foreign country or the exporter. This tax ultimately comes out of consumers’ pockets through higher prices.”
All of that said, and despite Trump’s history of anti-China rhetoric, it remains unclear how quickly his administration might actually move to roll out sweeping tariffs, with some economists speculating that the president-elect plans, initially at least, to use the threat of additional levies as a cudgel to negotiate more favorable trade terms with Beijing. Trump could also choose to gradually phase in tariffs, delaying their full impact on China’s economy.
Will China attack Taiwan, and would Trump come to the rescue?
Trump’s return to the White House may also help Beijing further its interests with Taiwan, the democratically governed island of 23 million people just 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 U.S. government enacted the Taiwan Relations Act in 1979, the U.S. is strategically committed to aid in Taiwan’s defense in the event of any aggression, including by selling weapons to the island’s government.
Open to interpretation, however, and left deliberately vague in the U.S. law, is whether Washington is obligated to directly defend Taiwan, using the power of the American military, if it does come under attack.
President Biden, during his first term, said Washington would, breaking with the long-time policy of “strategic ambiguity” that the Biden White House later returned to.
“The sovereignty over Taiwan is the red line of all the red lines,” Wang told CBS News. “Trump, in his presidential campaign speeches, he made it very clear… [that he’s] unlikely to send troops to defend Taiwan.”
“I believe that China’s not going to invade Taiwan anytime soon,” Wang added, noting that Beijing has “so many problems it’ll have to fix at home.”
If Beijing did invade Taiwan, the fallout would be felt worldwide.
“That would be a devastating hit to the global economy,” said Chen. “I hope that it would not happen. So, maybe now, given the challenges with the Chinese economy, the leadership is realizing that without a stable economy, then all its global geopolitical ambitions would not have any economic foundation.”
contributed to this report.
