The world’s second-largest economy is US president-elect Donald Trump’s designated bogeyman, threatening it on the campaign trail with tariffs for stealing American jobs, but analysts say US protectionism could create opportunities for Beijing.
For months Trump has railed against China’s trade practices, saying it artificially lowers its currency to boost its exporters at the cost of American manufacturing jobs, and threatening to levy a 45% tariff on all Chinese-made goods.
He also denounced the Obama administration’s Trans-Pacific Partnership (TPP) trade agreement with Asia-Pacific economies – excluding China – that accounts for nearly 40% of the global economy.
Before the election two of Trump’s advisors wrote in Foreign Policy magazine that he would “never again sacrifice the US economy on the altar of foreign policy by entering into bad trade deals like the North American Free Trade Agreement, allowing China into the World Trade Organisation, and passing the proposed TPP”.
The TPP has yet to be ratified by the US and “is now dead”, said Mark Williams of Capital Economics.
The demise of that deal, intended to bolster US influence in the region, hands Beijing an opportunity to forge an Asia-focused trade agreement of its own that “excludes the US”, he added.
Moreover, “if the US is less engaged in Asia, Beijing will have an opportunity to shape regional political and economic integration on its own terms”.
China has already embarked on negotiations to create the Regional Comprehensive Economic Partnership, a free trade area encompassing the southeast Asian grouping Asean, China, India, Japan, South Korea, Australia and New Zealand.
Something of a mirror image to TPP, it includes six of the Washington-led grouping’s 12 members – but not the US.
It would encompass more than three bn people and Australian foreign minister Julie Bishop told media yesterday that if TPP does fail, “then the vacuum that would be created is most likely to be filled by RCEP”.
Any retreat from trade and engagement by the US could also send its business partners into the arms of Beijing, which regularly offers countries soft loans to encourage deals and has urged its companies to expand overseas and compete directly with foreign firms. President Xi Jinping’s signature One Belt One Road initiative has already made inroads for Chinese construction and industrial firms in central Asia, aided by generous loans from state-owned banks.
Trump’s threat of a 45% tariff on all Chinese-made goods could set off a trade war between the world’s top two economies.
The immediate impact would be felt first by China, which has long enjoyed a substantial trade surplus with the US.
Daiwa Capital Markets analyst Kevin Lai said in a note that a 45% tariff would see Chinese exports to the world’s largest economy plummet by 87%, or $420bn.
Even a “watered-down” 15% tariff would see them fall by 31%, he said, according to Bloomberg News, eventually costing China 1.75% of its GDP.
Labour-intensive exports such as agricultural products, iron and steel would be hit hardest, Lu Zhengwei, chief economist at Industrial Bank, told AFP.
But with the Asian giant a key driver of global growth, the ramifications would ripple across the world and ultimately rebound on the US.
US corporations and legislators would likely lobby against disruptions to trade, Christopher Balding of Peking University’s business school told AFP.
“I don’t think it is feasible as a matter of politics, and I don’t think it is feasible as a matter of legal authority,” he said, “even if it seems that with Trump there is nothing you can’t rule out.”
Moreover, such tariffs would probably prompt a strong response from Beijing, said Raymond Yeung, chief China economist at ANZ Research.
“Any trade retaliation by China against the US could actually hurt US interests severely,” he said. Asked about Trump’s tariff threat, China’s foreign ministry spokesman Lu Kang told reporters Thursday that the 200-fold expansion in bilateral trade between the two countries in recent decades had been mutually beneficial.
“Any statesman in the US who has his people’s and his country’s interests in mind will make the right decision,” he said.