What the US election will mean for China and the economy
THE Sino-American rivalry plays a pivotal role in today’s global market, as well as the Chinese economy. The US presidential election will have an important impact on the price of assets, affecting Chinese manufacturers, importers, exporters and the stability of the currency.
How do the China policies of the two major candidates differ? And what can this tell us about the prospects of Chinese assets after the election?
Donald Trump is more hawkish on immigration than US President Joe Biden. He also takes a more conservative approach toward climate change as he advocates for a return to fossil fuels. However, the most significant impact on the pricing of Chinese assets comes from their differing stances on tariffs, tax cuts and monetary policy.
Tariffs
Although both candidates support high tariffs, Trump’s approach is more extreme.
In May, Biden announced that the US would impose higher tariffs on Chinese imports, including raising tariffs on new-energy vehicles from 25 per cent to 100 per cent, and on semiconductors and solar cells from 25 per cent to 50 per cent. However, there are some limitations. These tariff increases only affect about US$18 billion worth of goods, and some of them will not take effect until 2026.
Trump proposes a more drastic approach, suggesting a universal 10 per cent tariff on all goods entering the US based on the belief that “all nations pose a trade threat” and a further 60 per cent or higher additional tariff targeting Chinese goods. Certain regions or industries might face “specific taxes,” such as a 100 per cent tariff on Chinese cars produced in Mexico.
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Studies indicate that the tariff costs are ultimately passed on to domestic companies and consumers.
Based on effects of the tariff imposed in 2018, scholars estimate that a 1 per cent increase in the duties leads to a 0.3-0.6 per cent rise in CPI, with consumers bearing higher costs. However, during the first presidential debate, Trump insisted that a 10 per cent tariff would not lead to higher inflation.
The ongoing electoral dynamics will significantly affect global trade, capital markets and supply chains. Following the debate, amid concerns about inflation should Trump win, global capital markets began trading under the influence of tariff policies, with the 10-year US Treasury yield rising by 0.1 per cent to 4.4 per cent.
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Domestic tax policy
The two candidates have starkly different domestic tax policies, which will directly affect “external demand” for Chinese assets.
Biden introduced the Balancing Act, which involves raising income taxes on high earners and increasing the corporate tax rate to 28 per cent to target large companies and multinational corporations.
In contrast, Trump favours extensive tax cuts. Most personal income tax provisions from the 2018 US tax reform are set to expire in January 2026.
During the first debate, when asked about extending the tax cuts despite the trillion-dollar deficit and record-high debt, Trump replied: “The tax cuts have led to the greatest economy with more revenue from lower taxes – and companies have brought back trillions to our country. We are moving forward at an unprecedented rate, ready to start repaying our debt.”
Trump advocates for extending the personal tax cut period and reducing corporate income tax from 21 per cent to 15 per cent with the possibility of making these changes permanent.
If Trump wins a second term, his tax cut policies could directly boost demand for US products (corresponding to our external demand) and strengthen the medium to long-term performance of domestic corporate profits.
China International Capital estimates that although the current effective tax rate of the S&P 500 index is close to 15 per cent, companies in sectors such as energy, transportation, diversified financials, banking, business services and durable consumer goods all have tax rates exceeding this threshold.
Assuming these industries reduce their tax rates to 15 per cent, the net profit growth rate of the S&P 500 index for 2025 could rise from the current market consensus of 13.7 per cent to 17 per cent.
Monetary policy impact
Finally, Trump’s views on Federal Reserve policy differ significantly from Biden’s. Since current Fed Chair Jerome Powell’s term will end in May 2026, Trump’s potential reelection could disrupt the execution of monetary policy due to his proposed tariffs, tax cuts, energy policies and domestic investments — likely pushing inflation higher.
Trump’s trademark unpredictability makes him a wild card for enacting monetary policy.
Traditionally, US presidents do not comment on monetary policy to maintain the Fed’s technical independence. However, Trump frequently challenged this norm during his term, saying things like, “I am not thrilled,” and, “The tightening now hurts everything we have done,” which could increase the likelihood of policymakers’ intervention in a high-inflation, high-interest-rate environment. CAIXIN GLOBAL
Tang Ya is a financial commentator and a former professor of finance at Peking University.
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