Trump’s threat of renewed tariffs could hit China hard and slash global growth, analysts warn
US PRESIDENTIAL ELECTION
DONALD Trump’s proposed steep tariffs on Chinese goods could send shockwaves through global supply chains, slow trade growth and further strain China’s already challenged economy, potentially shaving 0.5 percentage point off its performance, according to some estimates.
This fresh wave of protectionism, building on Trump’s “America First” stance, threatens to put China’s exports – and by extension, Asean’s trade flows – at risk, eroding a substantial share of anticipated global export gains anticipated for 2025 and 2026, and heightening economic uncertainty across the region, said analysts.
Amid such uncertainty, OCBC chief economist Selena Ling believes the net impact on China’s growth and trade relationships is likely to be adverse in the near term.
Under the first Trump administration, tariffs were imposed on about US$370 billion worth of Chinese imports. Tariffs of 25 per cent and 10 per cent were also imposed on imported steel and aluminium, respectively.
“The result of this strong protectionist stance from the US was a strong deceleration in global trade volumes to 1.6 per cent in 2019, less than half of its long-term historical average,” said Allianz Research in a recent report.
Analysts from Amundi suggest that Trump could focus on tariff and immigration policies, which he can swiftly enact through executive orders without Congressional approval. Trump may “prioritise tariff and immigration policies over tax cuts, as these can be implemented through executive orders”, they noted.
Amundi’s analysis suggests a 60 per cent levy on Chinese imports – a threat Trump repeatedly raised during his campaign – could shave up to 0.5 percentage point off China’s economic growth.
“Trump is expected to increase US import tariffs as early as Q2 2025 through an executive order, initially raising tariffs to 25 per cent for Chinese imports and to 5 per cent for imports from the rest of the world, excluding Canada, Mexico and critical goods,” said Allianz Research.
This initial hike could put an estimated US$135 billion in global exports at risk, or around 4 per cent of expected global export gains for 2025 to 2026.
In a “severe scenario” – that is, if tariffs on all Chinese goods rise to 60 per cent and those on global imports to 10 per cent – the total exports at risk could surge to US$510 billion.
This escalation would potentially reduce global economic growth by 0.8 percentage point, effectively curbing nearly one-third of global growth, the Allianz Research analysis found.
For China, the world’s second-largest economy, the projected tariff hikes could cut gross domestic product growth by 0.5 percentage point in 2025 and 1.1 percentage points in 2026, the analysis noted.
While Trump’s policy approach will be pivotal in shaping the direction of geopolitical issues, the responses of international leaders will also play a critical role in determining the global impact, said ANZ Bank’s head of geopolitical risk Cameron Mitchell, who spoke at the Predict 2024 event last Friday (Nov 8), hosted by global threat intelligence company Recorded Future.
China is expected to implement a range of domestic policies to counter US trade pressures.
Devan Kaloo, global head of equities at abrdn, suggested that Beijing may “ramp up domestic economic growth efforts, possibly introducing more aggressive stimulus measures” to soften the blow.
Such policies could include providing fiscal support, strengthening regional trade ties, and encouraging Chinese companies to set up production bases in Asean countries, thereby offsetting anticipated reductions in US exports, noted Maybank economists Erica Tay and Chua Hak Bin.
Stability over retaliation
China may leverage its influence in key sectors and strategically retaliate to counterbalance US trade pressures.
Professor Lawrence Loh of the National University of Singapore Business School’s department of strategy and policy noted that China could continue to wield some power in critical metals and technologies.
“It can also retaliate with precision, for example, (by imposing) tariffs on agricultural produce from the heartlands of the US which are the traditional stronghold support of Trump,” said Prof Loh.
On the other hand, OCBC’s Ling cautioned that under “Trump 2.0”, China may be better prepared to handle new tariffs. However, with significant domestic challenges to tackle, it might be less inclined to pursue retaliatory actions.
Prof Loh highlighted that maintaining domestic economic stability and growth is paramount for China, making it unlikely to take significant risks in its economic relations with the US.
Asean will also be vulnerable to potential policy actions as its trade surplus with the US has more than doubled since 2018. This is a result of the supply chain shifts to avoid tariffs, as well as trade restrictions imposed since Trump’s first term, said UOB in a note.
Moody’s Analytics economist Denise Cheok added that the fragmentation of global trade in general and the direct hit to exports as a result of increased tariffs by Trump would have an impact on most Asean economies due to their reliance on exports.
If Trump imposes a blanket tariff on all other countries, Ling suggested, no industries would be entirely immune.
She added that the extent of re-routing or diversification through Asean supply chains will largely depend on the tariff levels imposed on the region.
Despite recent moves towards a softer stance on de-risking, Prof Loh warned that Trump’s presidency could revert to a stronger decoupling strategy, as the president-elect is expected to “switch gears and directions fast and furious”.
“Whatever the outcomes, some displacement of supply chain activities, particularly on production or even financing, may occur to Asean markets,” he said.
Ryan Gwee, founder and group chairman of fintech platform Aleta Planet, noted that many Chinese companies began decoupling “years ago”. Gwee’s firm advises up to 600 Chinese enterprises annually, each with revenues of at least US$100 million, that have already shifted operations outside China.
Many Chinese companies had already begun establishing “last-mile” manufacturing facilities outside China – particularly in Mexico and Asean – during Trump’s first term from 2017 to 2021, Gwee noted.
Consequently, he said, the anticipated new tariffs from Trump are expected to have minimal impact on these businesses, with the trend of decoupling likely to accelerate in the coming years.
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