Economics
How does Ron DeSantis dropping out change the Republican primary?
Editor’s note (January 21st 2024): This story was updated after Ron DeSantis said he was suspending his campaign for the Republican nomination.
RON DESANTIS’S campaign ended, as it began, on X. His live launch event was meant to show how au fait with the future the Florida governor was. Instead the glitchy launch turned into the equivalent of dad dancing. Mr DeSantis took no such chances with his withdrawal from the Republican primary, which he announced in a video posted on the same platform. As a final act of self-degradation he endorsed Donald Trump, who has been bullying him for months about his height and his table manners.
That leaves just two candidates standing: Mr Trump and Nikki Haley. Ms Haley’s hopes hinge on the tiny state of New Hampshire, which votes on January 23rd. Though only three of the past eight winners of a competitive Republican Iowa caucus have gone on to win their party’s nomination, New Hampshire has voted for six eventual nominees. Ms Haley hopes to become the seventh. Mr DeSantis’s departure is unlikely to make a hard task any easier.
Her campaign is right to bet on New Hampshire. Ms Haley’s base—independent, moderate and college-educated voters—makes up an unusually large share of the state’s primary electorate. But the promise New Hampshire offers is also why Ms Haley finds herself in a bind. Although a triumph in the Granite State could give her a lift, the electorate across the remaining key states in the Republican primary is more religious, less educated and as a result far Trumpier. The coalition she has crafted to be competitive in New Hampshire will be hard, perhaps impossible, to recreate elsewhere.
A Republican non-incumbent candidate has never won both Iowa and New Hampshire in the party’s primary. But judging by the latest polling Donald Trump, ever the disruptor, looks set to make history. He leads Ms Haley in the state by 15 points; Mr DeSantis had sunk to single figures (see chart 1). In a Republican primary marked by candidates fighting for second place (the former president leads nationally by 55 points), the Haley campaign reckons her smaller deficit in New Hampshire is surmountable. A month before the Iowa caucuses Mr Trump’s lead in the state was nearly double what it is today. Her campaign and allied super PACs have bombarded New Hampshire’s airwaves with ads, spending twice as much as Mr Trump and a bit more than three and a half times as much as Mr DeSantis, who finished just above Ms Haley in Iowa on January 15th (chart 2).
Now he is no longer in the race, where will his voters go? The Economist’s YouGov poll, taken earlier in January, asked Republican primary voters about their second preferences. The race may have moved since, and the poll was taken before Vivek Ramaswamy dropped out, but the numbers are still instructive. Among first choice DeSantis voters in that survey, 44% said Mr Trump would be their second choice. Only 24% said they would vote for Ms Haley. The sample is small, so aim off for that. But the reason the sample is small is that there are so few DeSantis voters in the poll.
If Ms Haley wins in New Hampshire it will be in no small part thanks to the state’s open primary rules and, to a lesser extent, a kink in the Democratic primary. Unaffiliated voters, not just Democrats and Republicans, can take part in one of New Hampshire’s primaries. This year some independents will have little choice but to vote in the Republican one because New Hampshire (living up to its state motto “live free or die”) has rendered the Democratic Party’s primary obsolete. In an effort to make the set of states that vote earlier in the primary process more reflective of the Democratic Party’s voters, the Democratic National Committee (DNC) moved the state’s primary to follow or coincide with those of South Carolina and Nevada, which have more non-white voters. But New Hampshire state law requires its primaries to be the first in the country. As a result, the contest on Tuesday is not formally recognised by the DNC, and Joe Biden is not on the ballot.
This is fortunate for Ms Haley. Independents in New Hampshire back her by a 15-point margin. According to poll estimates, they are expected to account for nearly half the state’s primary electorate, compared with 30% in 2016. However, other states with open Republican primaries will have a corresponding Democratic primary to siphon off independents. Such is the case in South Carolina, Ms Haley’s home state. According to a poll taken in early January, although independents there support her by a four-point margin, they make up only an estimated one-quarter of the state’s Republican-primary electorate. And because Mr Trump’s grip on the remaining three-quarters of South Carolina’s electorate is so strong (they back him by three to one), the overall gap between Ms Haley and the former president was a canyonesque 29 points before Mr DeSantis dropped out. For her four-point advantage among independents to outweigh her 41-point deficit among Republicans, independents would need to make up 91% of the South Carolina electorate. They do not.
Just possibly she could win New Hampshire’s Republican primary on the backs of independents, but she cannot win the nomination with this formula. So winning alone is not enough; rather, Ms Haley needs to show marked improvement among the party faithful if her candidacy is to remain viable. She failed to surge among Republicans in Iowa and polling suggests it will be a tall order in New Hampshire, too. According to a Suffolk University poll, nearly half of Ms Haley’s would-be voters there say they are casting their ballot against Donald Trump, rather than in support of her. In contrast, 93% of Mr Trump’s supporters say they are voting for him, not against Ms Haley. MAGA voters’ support seems to be set in granite.■
SHENZHEN, CHINA – APRIL 12: A woman checks her smartphone while walking past a busy intersection in front of a Sam’s Club membership store and a McDonald’s restaurant on April 12, 2025 in Shenzhen, China.
Cheng Xin | Getty Images News
As sky-high tariffs kill U.S. orders for Chinese goods, the country has been striving to help exporters divert sales to the domestic market — a move that threatens to drive the world’s second-largest economy into deeper deflation.
Local Chinese governments and major businesses have voiced support to help tariff-hit exporters redirect their products to the domestic market for sale. JD.com, Tencent and Douyin, TikTok’s sister app in China, are among the e-commerce giants promoting sales of these goods to Chinese consumers.
Sheng Qiuping, vice commerce minister, in a statement last month described China’s vast domestic market as a crucial buffer for exporters in weathering external shocks, urging local authorities to coordinate efforts in stabilizing exports and boosting consumption.
“The side effect is a ferocious price war among Chinese firms,” said Yingke Zhou, senior China economist at Barclays Bank.
JD.com, for instance, has pledged 200 billion yuan ($28 billion) to help exporters and has set up a dedicated section on its platform for goods originally intended for U.S. buyers, with discounts of up to 55%.
An influx of discounted goods intended for the U.S. market would also erode companies’ profitability, which in turn would weigh on employment, Zhou said. Uncertain job prospects and worries over income stability have already been contributing to weak consumer demand.
After hovering just above zero in 2023 and 2024, the consumer price index slipped into negative territory, declining for two straight months in February and March. The producer price index fell for a 29th consecutive month in March, down 2.5% from a year earlier, to clock its steepest decline in four months.
As the trade war knocks down export orders, deflation in China’s wholesale prices will likely deepen to 2.8% in April, from 2.5% in March, according to a team of economists at Morgan Stanley. “We believe the tariff impact will be the most acute this quarter, as many exporters have halted their production and shipments to the U.S.”
For the full year, Shan Hui, chief China economist at Goldman Sachs, expects China’s CPI to fall to 0%, from a 0.2% year-on-year growth in 2024, and PPI to decline by 1.6% from a 2.2% drop last year.
“Prices will need to fall for domestic and other foreign buyers to help absorb the excess supply left behind by U.S. importers,” Shan said, adding that manufacturing capacity may not adjust quickly to “sudden tariff increases,” likely worsening the overcapacity issues in some industries.
Goldman projects China’s real gross domestic product to grow just 4.0% this year, even as Chinese authorities have set the growth target for 2025 at “around 5%.”
Survival game
U.S. President Donald Trump ratcheted up tariffs on imported Chinese goods to 145% this year, the highest level in a century, prompting Beijing to retaliate with additional levies of 125%. Tariffs at such prohibitive levels have severely hit trade between the two countries.
The concerted efforts from Beijing to help exporters offload goods impacted by U.S. tariffs may not be anything more than a stopgap measure, said Shen Meng, director at Beijing-based boutique investment bank Chanson & Co.
The loss of access to the U.S. market has deepened strains on Chinese exporters, piling onto weak domestic demand, intensifying price wars, razor-thin margins, payment delays and high return rates.
“For exporters that were able to charge higher prices from American consumers, selling in China’s domestic market is merely a way to clear unsold inventory and ease short-term cash-flow pressure,” Shen said: “There is little room for profits.”
The squeezed margins may force some exporting companies to close shop, while others might opt to operate at a loss, just to keep factories from sitting idle, Shen said.
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As more firms shut down or scale back operations, the fallout will spill into the labor market. Goldman Sachs’ Shan estimates that 16 million jobs, over 2% of China’s labor force, are involved in the production of U.S.-bound goods.
The Trump administration last week ended the “de minimis” exemptions that had allowed Chinese e-commerce firms like Shein and Temu to ship low-value parcels into the U.S. without paying tariffs.
“The removal of the de minimis rule and declining cashflow are pushing many small and medium-sized enterprises toward insolvency,” said Wang Dan, China director at political risk consultancy firm Eurasia Group, warning that job losses are mounting in export-reliant regions.
She estimates the urban unemployment rate to reach an average 5.7% this year, above the official 5.5% target, Wang said.
Beijing holds stimulus firepower
Surging exports in the past few years have helped China offset the drag from a property slump that has hit investment and consumer spending, strained government finances and the banking sector.
The property-sector ills, coupled with the prohibitive U.S. tariffs, mean “the economy is set to face two major drags simultaneously,” Ting Lu, chief China economist at Nomura, said in a recent note, warning that the risk is a “worse-than-expected demand shock.”
Despite the mounting calls for more robust stimulus, many economists believe Beijing will likely wait to see concrete signs of economic deterioration before it exercises fiscal firepower.
“Authorities do not view deflation as a crisis, instead, [they are] framing low prices as a buffer to support household savings during a period of economic transition,” Eurasia Group’s Wang said.
When asked about the potential impact of increased competition within China’s market, Peking University professor Justin Yifu Lin said Beijing can use fiscal, monetary and other targeted policies to boost purchasing power.
“The challenge the U.S. faces is larger than China’s,” he told reporters on April 21 in Mandarin, translated by CNBC. Lin is dean of the Institute of New Structural Economics.
He expects the current tariff situation would be resolved soon, but did not share a specific timeframe. While China retains production capabilities, Lin said it would take at least a year or two for the U.S. to reshore manufacturing, meaning American consumers would be hit by higher prices in the interim.
— CNBC’s Evelyn Cheng contributed to this story.
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