INSIGHT: Trump’s win to hit China economy as decoupling intensifies

SINGAPORE (ICIS)–Donald Trump’s return to the White House could intensify trade frictions with China, fostering decoupling of the world’s two biggest economies, with Chinese exporters looking at making advance shipments to the US before new tariffs are imposed.

• Hefty US tariffs to drag down China exports, GDP growth
• China may accelerate relocation of manufacturers
• Heavy flow of Chinese exports to US likely in H1 2025

In his election campaign, Trump has vowed to take four major actions against China upon winning, namely, revoke China’s Permanent Normal Trade Relations (PNTR) or most favoured nation status; impose tariffs of 60% or more on all Chinese goods; stop importing Chinese necessities within the four years of his second term as US president; and crack down on Chinese goods imported through third countries.

In Trump’s first term as US government head in 2016-2020, Washington had launched five rounds of tariffs on around $550 billion worth of Chinese imports, raising the average duties on Chinese goods by more than fivefold to 15.4% from 2.7%.

Based on calculations by investment bank China International Capital Corp (CICC), those tariffs had reduced China’s exports to the US by around 5.5% and dragged down China’s overall GDP by one percentage point.

If a 60% tariff is imposed on Chinese goods in Trump’s second term, China’s overall export growth would be shaved by 2.1-2.6 percentage points and its GDP growth by 0.2-0.3 percentage points, CICC said in a research note.

Most Chinese exporters, especially those which rely heavily on the US market, will face the fallout in terms of significant drop in export volumes and profits, CICC said.

“Only those in high value-added and very competitive sectors can sustain that high tariff. This will accelerate the trend of Chinese companies moving manufacturing sites to third countries like Vietnam and Mexico to finally get into US markets,” it added.

China has been actively expanding trade relations with partner countries in its belt-and-road project within Asia as well as Africa, as buffer against growing US import curbs on its goods.

In 2023, ASEAN replaced the US as China’s biggest export destination.

“That demonstrated resilience and competitiveness of Chinese products in global markets,” said Li Xunlei, chief economist at Hong Kong-based brokerage China Zhongtai International.

China, however, is currently faces huge challenges, including slowing domestic demand, high debt, a property slump, and decoupling from western countries, he said.

“One major headache now is that currency depreciation is difficult to implement this time, because [a] weakening yuan could trigger capital outflow,” Li said.

In 2018-2019, China was able to offset the US tariffs by allowing the Chinese yuan (CNY) to depreciate by around 10%.

This time, mitigating the ill-effects of a 60% US tariff would need the yuan to fall by 18% against the US dollar, which meant exchange rate of CNY8.5 to $1.0, which was not seen since the 1997 Asian financial crisis, Li pointed out.

Some Chinese exporters have been looking to pre-ship goods to the US ahead of the potential imposition of new tariffs.

A Guangdong-based shipping broker has received increasing inquiries for Q1 2025 container spaces from China to North America, because traders are trying to move cargoes as early as possible to avoid the tariff issue.

These could mean a strong flow of Chinese exports – including consumer electronics, plastics, home appliances, among others – to the US in the first two quarters of next year.

Insight article by Fanny Zhang

($1 = CNY7.16)