If Donald Trump wins the November election, it could pose a significant risk to China’s economic growth. In particular, according to Swiss investment bank UBS on Monday, if Trump imposes a 60% tariff on all Chinese products, China’s annual economic growth rate could be halved.
UBS economist Tao Wang predicted that if Trump imposes high tariffs on Chinese imports, China’s Gross Domestic Product (GDP) growth rate will reduce by 2.5% the following year. Wang estimates that half of this will stem from a decrease in exports, while the rest will result from hits to consumption and investment.
China’s growth rate last year was 5.2%, which is expected to grow by 5% this year. Earlier this year, Trump mentioned imposing a 60% blanket tariff on Chinese imports, which would reduce Chinese products’ access to the U.S. market.
When such tariffs are imposed, China will circumvent some exports through third countries. This is under the assumption that there are no retaliatory tariffs and third countries have low tariffs. China’s economic situation could worsen if the allies impose high tariffs.
Exports are crucial for China’s growth rate. Net exports have accounted for 14% of China’s growth rate until now. Last month, China recorded its highest trade surplus ever. However, according to Bloomberg, China’s massive trade surplus has sparked complaints about trade imbalances from trade partners. Consequently, many countries are considering tariffs. China also cannot hastily retaliate with trade countermeasures. If China retaliates in trade, it could increase import costs, expanding the impact of tariffs.
In response, the Chinese government could issue special national bonds to fund fiscal stimulus measures and ease monetary policy to mitigate the impact of sharp tariff increases. However, it will devalue the yuan by 5 to 10%.
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