How Badly Will the Trump Presidency Hurt the Chinese Economy?

November 9, 2016

Chinese citizens have been poking fun at “The Donald” since his initial entry into the US presidential race last year.  Now with Mr. Trump’s commanding victory and accompanying sweep of both the Senate and the House of Representatives, many Chinese are wondering what the future holds for US-Sino relations.  Trump’s promises to make China pay for the US’s lost manufacturing jobs and to put higher tariffs on Chinese goods seem destined to be fulfilled, which would cause much pain for the world’s second largest economy as well as the rest of the world.
  “Protectionism brought the Great Depression around the world and he could cause that again,” says Jeffrey Firestone, a semi-retired lawyer from Chicago who advises law firms in China.  “If he cuts off China from selling consumer goods to the USA, there will be huge inflation in the USA.  Chinese factories will go bankrupt.  Tens of millions will lose their jobs.  The whole world could go crazy.”  

Now that Trump has officially won, Chinese citizens have begun to sincerely worry about what a Trump presidency portends for the first time.  Markets all over the globe plunged in today’s trading…Japan’s Nikkei fell over 5%, the Hang Seng fell over 2%, and the Shanghai Composite tanked intra-day, but recovered somewhat to close at a loss of .6%.  Chinese investors are concerned that America’s new protectionist sentiment and ensuing policies could drag down its capital market.  Indeed at one point during the campaign, Trump proposed a 45% tariff on all Chinese goods coming into the US.  Such a move would spark a trade war on global proportions.  China would likely retaliate by levying similar tariffs on the US.  However, US exports to China are about a quarter of the size of China’s exports to the US, making the damage to the US economy far less in effect.

China has been using the US as a cash cow for decades by running a huge trade surplus to the tune of $366 billion in 2015, and Trump seems determined to cut down on that outflow of cash.  Additionally, the US has lost five million manufacturing jobs over the past 15 years, while China saw rapid growth in manufacturing over that same period of time.  Trump seems committed to bringing a significant number of lost manufacturing jobs back to the US, probably via high tariffs on Chinese goods to offset the labor cost advantages.  Such a move comes at the worst possible time for China when manufacturing is slowing and a decades-long leveraged-fuelled investment boom may be turning to bust.

The Global Times, the nationalistic state tabloid that sometimes echoes the Chinese government’s unspoken point of view, warned Trump not to harm China’s economic relationship with the US.  “He should think about how China will counteract, and what the US will lose,” the publication states.  We wonder about the undertones in these ominous words.

Regardless of China’s veiled threat to the US, the debate over its currency manipulation, loss of American jobs, theft of intellectual property rights, and an uneven playing field with China will continue to be a primary topic of conversation inside and outside of Washington.