The increased likelihood that Donald Trump will regain the presidency is a threat to Xi Jinping’s factory-led strategy for restructuring China’s economy.
When the senior leadership of China’s Communist Party gathered in Beijing for their five-yearly “third plenum” this week, they would have been monitoring recent developments in the US with some concern.
Trump’s transactional view of trade and his misunderstanding of how tariffs work means the threat of a 60 per cent tariff wall against imports from China is becoming ever more real.UBS economists released a report this week that says they estimate it would carve 2.5 percentage points off China’s GDP growth rate, effectively halving it from its current rate of around 5 per cent.
China is highly reliant on exports. The collapse of its property sector over the past three years is continuing and continues to cast a pall over consumer confidence and domestic consumption. Absent some bold effort to stimulate consumption, which seems unlikely given Xi’s stated aversion to such measures, China’s growth rate will be dependent on the success of Xi’s “high quality” developments, or technologies like semiconductors, artificial intelligence, robotics, big data, green technologies and the advanced manufacturing that he hopes can drive productivity.
The massive state-directed increase in China’s manufacturing capacity has resulted in significant excess capacity, particularly in EVs and solar panels, which has already seen a flood of cheap manufactures into the global market that has caused increasing concern – and increased tariffs – in other economies, and not just in the US and Europe.
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