Finance
Trump win and threat of more tariffs raises expectations for more China stimulus
Chinese and U.S. flags flutter near The Bund, before U.S. trade delegation meet their Chinese counterparts for talks in Shanghai, China July 30, 2019.
Aly Song | Reuters
BEIJING — Donald Trump’s 2024 presidential win has raised the bar for China’s fiscal stimulus plans, expected Friday.
On the campaign trial, Trump threatened to impose additional tariffs of 60% or more on Chinese goods sold to the U.S. Increased duties of at least 10% under Trump’s first term as president did not dent America’s position as China’s largest trading partner.
But new tariffs — potentially on a larger scale — would come at a pivotal time for China. The country is relying more on exports for growth as it battles with a real estate slump and tepid consumer spending.
If Trump raises tariffs to 60%, that could reduce China’s exports by $200 billion, causing a 1 percentage point drag on GDP, Zhu Baoliang, a former chief economist at China’s economic planning agency, said at a Citigroup conference.
Since late September, Chinese authorities have ramped up efforts to support slowing economic growth. The standing committee of the National People’s Congress — the country’s parliament — is expected to approve additional fiscal stimulus at its meeting this week, which wraps up Friday.
“In response to potential ‘Trump shocks,’ the Chinese government is likely to introduce greater stimulus measures,” said Yue Su, principal economist at the Economist Intelligence Unit. “The overlap of the NPC meeting with the U.S. election outcome suggests the government is prepared to take swift action.”
She expects a stimulus package of more than 10 trillion yuan ($1.39 billion), with about 6 trillion yuan going towards local government debt swaps and bank recapitalization. More than 4 trillion yuan will likely go towards local government special bonds for supporting real estate, Su said. She did not specify over what time period.
Stock market divergence
Mainland China and Hong Kong stocks fell Wednesday as it became clear that Trump would win the election. U.S. stocks then soared with the three major indexes hitting record highs. In Thursday morning trading, Chinese stocks tried to hold mild gains.
That divergence in stock performance indicates China’s stimulus “will be slightly bigger than the baseline scenario,” said Liqian Ren, who leads WisdomTree’s quantitative investment capabilities. She estimates Beijing will add about 2 trillion yuan to 3 trillion yuan a year in support.
Ren doesn’t expect significantly larger support due to uncertainties around how Trump might act. She pointed out that tariffs hurt both countries, but restrictions on tech and investment have a greater impact on China.
Trump, during his first term as president, put Chinese telecommunications giant Huawei on a blacklist that restricted it from using U.S. suppliers. The Biden administration expanded on those moves by limiting U.S. sales of advanced semiconductors to China, and pressuring allies to do the same.
Both Democrats and Republicans supported the passage of those newer export controls and efforts to boost semiconductor manufacturing investment in the U.S., Chris Miller, author of “Chip War,” pointed out earlier this year. He expected the U.S. to increase such restrictions regardless of who won the election.
China has doubled down on bolstering its own tech by encouraging bank loans to high-end manufacturing. But the country had long benefited from U.S. capital as well as the ability to use U.S. software and high-end parts.
Republicans gained a majority in the Senate for the next two years, according to NBC News projections, though control of the House of Representatives remains unclear.
“If the Republican Party gains control of Congress, protectionist measures could be accelerated, amplifying impacts on the global economy and presenting significant downside risks,” Su said.
She expects Trump will likely impose such tariffs in the first half of next year, and could speed up the process by invoking the International Emergency Economic Powers Act or Section 122 of the Trade Act of 1974, which allows the president to impose tariffs of up to 15% in response to a serious balance-of-payments deficit.
U.S. data shows that the trade deficit with China narrowed to $279.11 billion in 2023, from $346.83 billion in 2016.
Su estimated that a 10% tariff increase on Chinese exports to the U.S. could reduce Beijing’s real GDP growth by an average of 0.3 to 0.4 percentage points in the next two years, assuming other factors remain constant.
China’s exports to the U.S. fell by 14% last year to $500.29 billion, according to customs data on Wind Information. That’s still up from $385.08 billion in 2016, before Trump was sworn in for his first term.
Meanwhile, China’s annual imports from the U.S. climbed to $164.16 billion in 2023, up from $134.4 billion in 2016, the Chinese data showed.
Other analysts believe that Beijing will remain conservative, and trickle out stimulus over the coming months rather than release a large package on Friday.
China’s top leaders typically meet in mid-December to discuss economic plans for the year ahead. Then, officials would announce the growth target for the year at an annual parliamentary meeting in March.
“China will likely face much higher tariff from the U.S. next year. I expect policy response from China to also take place next year when higher tariff is imposed,” Zhiwei Zhang, chief economist at Pinpoint Asset Management, said in a note Wednesday afternoon.
“I also don’t think the government will change the policies they already proposed to the NPC because of US election,” he said.
China’s growing global trade influence
Regardless of tariffs, China remains an export powerhouse to markets outside the U.S.
“Chinese exports have indeed shifted a bit in the past few years in terms of destination, with the U.S. representing less than 15% of total Chinese exports in 2023, compared with nearly 18% on average in the 2010s,” Francoise Huang, senior economist for Asia-Pacific and global trade at Allianz Trade, said in September.
“While China has lost market share in the U.S., it’s clearly been gaining in other places,” she said. “For example, China now represents more than 25% of ASEAN imports, compared with less than 18% in the 2010s.”
China’s exports have also grown to countries that sell to the U.S., a Federal Reserve report found in August.
— CNBC’s Dylan Butts contributed to this report.
Tensions between the world’s two largest economies have escalated over the last several years.
Florence Lo | Reuters
BEIJING — China is trying yet again to boost foreign investment, amid geopolitical tensions and businesses’ calls for more concrete actions.
On Feb. 19, authorities published a “2025 action plan for stabilizing foreign investment” to make it easier for foreign capital to invest in domestic telecommunication and biotechnology industries, according to a CNBC translation of the Chinese.
The document called for clearer standards in government procurement — a major issue for foreign businesses in China — and for the development of a plan to gradually allow foreign investment in the education and culture sectors.
“We are looking forward to see this implemented in a manner that delivers tangible benefits for our members,” Jens Eskelund, president of the European Union Chamber of Commerce in China, said in a statement Thursday.
The chamber pointed out that China has already mentioned plans to open up telecommunications, health care, education and culture to foreign investment. Greater clarity on public procurement requirements is a “notable positive,” the chamber said, noting that “if fully implemented,” it could benefit foreign companies that have invested heavily to localize their production in China.
China’s latest action plan was released around the same time the Commerce Ministry disclosed that foreign direct investment in January fell by 13.4% to 97.59 billion yuan ($13.46 billion). That was after FDI plunged by 27.1% in 2024 and dropped by 8% in 2023, after at least eight straight years of annual growth, according to official data available through Wind Information.
All regions should “ensure that all the measures are implemented in 2025, and effectively boost foreign investment confidence,” the plan said. The Ministry of Commerce and National Development and Reform Commission — the economic planning agency — jointly released the action plan through the government’s executive body, the State Council.
Officials from the Commerce Ministry emphasized in a press conference Thursday that the action plan would be implemented by the end of 2025, and that details on subsequent supportive measures would come soon.
“We appreciate the Chinese government’s recognition of the vital role foreign companies play in the economy,” Michael Hart, president of the American Chamber of Commerce in China, said in a statement. “We look forward to further discussions on the key challenges our members face and the steps needed to ensure a more level playing field for market access.”
AmCham China’s latest survey of members, released last month, found that a record share are considering or have started diversifying manufacturing or sourcing away from China. The prior year’s survey had found members were finding it harder to make money in China than before the Covid-19 pandemic.
Consumer spending in China has remained lackluster since the pandemic, with retail sales only growing by the low single digits in recent months. Tensions with the U.S. have meanwhile escalated as the White House has restricted Chinese access to advanced technology and levied tariffs on Chinese goods.
‘A very strong signal’
While many aspects of the action plan were publicly mentioned last year, some points — such as allowing foreign companies to buy local equity stakes using domestic loans — are relatively new, said Xiaojia Sun, Beijing-based partner at JunHe Law.
She also highlighted the plan’s call to support foreign investors’ ability to participate in mergers and acquisitions in China, and noted it potentially benefits overseas listings. Sun’s practice covers corporates, mergers and acquisitions and capital markets.
The bigger question remains China’s resolve to act on the plan.
“This action plan is a very strong signal,” Sun said in Mandarin, translated by CNBC. She said she expects Beijing to follow through with implementation, and noted that its release was similar to a rare, high-profile meeting earlier in the week of Chinese President Xi Jinping and entrepreneurs.
That gathering on Feb. 17 included Alibaba founder Jack Ma and DeepSeek’s Liang Wenfeng. In recent years, regulatory crackdowns and uncertainty about future growth had dampened business confidence and foreign investor sentiment.
China needs to strike a balance between tariff retaliation and stabilizing FDI, Citi analysts pointed out earlier this month.
“We believe China policymakers are likely cautious about targeting U.S. [multinationals] as a form of retaliation against U.S. tariffs,” the analysts said. “FDI comes into China, bringing technology and know-how, creating jobs, revenue and profit, and contributing to tax revenue.”
In a relatively rare acknowledgement, Chinese Commerce Ministry officials on Thursday noted the impact of geopolitical tensions on foreign investment, including some companies’ decision to diversify away from China. They also pointed out that foreign-invested firms contribute to nearly 7% of employment and around 14% of taxes in the country.
Previously, official commentary from the Commerce Ministry about any drop in FDI tended to focus only on how most foreign businesses remained optimistic about long-term prospects in China.
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