Econ & Tech Experts on Trump’s Election
Commentaries by Zhang Ming, Xu Qiyuan, Lian Ping, Liu Dian and Gu Wenjun
Earlier this month, Beijing announced a Rmb10tn ($1.4tn) fiscal package. The headline debt-swap programme will reduce financial pressures for local governments, turning “hidden debts” into formal government debts. This was not just a stimulus package, according to one expert close to the People’s Bank of China (PBOC), but rather “a major shift in policy logic”. Policymakers have now adapted a “balanced approach”, where the focus will be on consumption as well as the usual investment, the expert said.
Despite the significance of the shift, markets were underwhelmed. Since September, many have been waiting for a huge stimulus, including perhaps real estate buybacks and direct cash transfers to consumers. That is yet to materialise. Policymakers are likely pondering the economic measures they should take as Trump returns to the White House. In today’s post, we summarise the recommendations of four Chinese economists and a well-known semiconductor expert.
Were Trump to implement his promised tariffs of 60% on Chinese goods, that would clearly hit China’s export markets. The economists basically agree on the need for stimulus, just not on the details. For example, Liu Dian argues that major fiscal stimulus will be needed, targeting infrastructure, innovation and household spending. Paired with local government debt swaps to reduce short-term financing pressures, he favours an increase in local government deficits. Xu Qiyuan and Ma Yingying’s focus is on the timing. If China can stimulate domestic demand enough before tariffs can be imposed, China will move from deflation to inflation, putting upwards pressure on prices globally. Arguing that inflation would be a key constraint on Trump’s ability to impose tariffs, they believe stimulus is needed as soon as possible.
Paddy Stephens
Name: Zhang Ming (张明)
Position: Deputy Director of the Institute of Finance & Banking, Chinese Academy of Social Sciences (CASS); Deputy Director of the National Institution for Finance & Development (NIFD)
Source: Zhang Ming Macro Financial Research (6th November)
After imposing a 60% tariff on direct Chinese imports, the second Trump administration could also consider tariffs on Chinese imports through third countries in 2026.
This would only be implemented if the impact of the initial tariffs on low and middle-income households in the US can be controlled [可控].
Other measures are possible too. America could cancel China’s most-favoured nation status and restrict Chinese investors' ability to buy US assets, like property.
“For the Chinese government, the key is to focus on China’s own path and unswervingly implement expansionary policies to stabilise growth and defuse risks.”
It will strive to reach a growth rate of 5.0% in 2025, despite the hit to exports.
In 2025, growth will be low at the beginning and high at the end (前低后高). The GDP deflator will go from negative to positive, meaning that nominal GDP growth will rebound by around 2% in 2025.
China may face continued short-term capital outflow and continuing pressure on the RMB exchange rate.
For fiscal policy, special treasury bonds could be needed to maintain a high intensity of fiscal expenditure, meaning a deficit of 4-5% of GDP in 2025.
For monetary policy, the PBOC still has room to cut reserve requirements and interest rates.
Assuming a worsening external environment, the Chinese government will increase efforts to reduce local government debt and stabilise the real estate market.
The purchase restrictions on real estate in first-tier cities could be fully lifted, meaning housing prices there would stabilise in 2025.
China's stock market performance in 2025 will be better than in 2024, and the 10-year treasury bond yield is expected to show a two-way consolidation at the central level of 2.0-2.2%.
Authors: Xu Qiyuan (徐奇渊) and Ma Yingying (马盈盈)
Xu: Deputy Director of the Institute of World Economics and Politics, Chinese Academy of Social Sciences (CASS)
Ma: Assistant Researcher, CASS
Source: Major trends in Finance (7th November)
Trump’s 60% tariff will reduce China’s GDP growth by only 1 percentage point, rather than the 1.6-2 others are estimating.
As industrial chains are restructured, China will benefit more from the trade in intermediate goods. Additionally, while trade in goods will fall by 12%, trade in services will rise by 9.5%.
With domestic demand low in China, the impact of tariffs on GDP needs to be taken seriously.
But inflation in the US, a key reason why the Democrats lost the election, will be an important constraint on Trump.
Analysts are underestimating how much higher tariffs could push inflation up. Bottlenecks in alternative manufacturing hubs and pressure on third countries would exacerbate the problem.
Fiscal stimulus will be most effective if done before Trump imposes tariffs. If China can increase domestic demand enough to move from deflation to inflation, it will push up global and US inflation. If China’s domestic demand remains weak, the US will have more space to impose high tariffs on China.
Some US economists expect tariffs to have little effect there, expecting three responses from China to protect exporters:
Devaluation of the RMB exchange rate
Chinese government subsidies to enterprises
Significant concessions from Chinese exporters.
China should resist these. Firstly, they are not practical: the RMB is undervalued, local governments are in financial difficulty, and profit margins are already low. But there are strategic reasons too:
Xu and Ma: “If we protect exports through these measures, it will subsidise the United States to a large extent, greatly alleviate the inflationary pressure in the United States, and further prove the correctness of Trump's policy.”
China's share of global exports has increased since 2017, more than countries like Mexico and Vietnam. China’s issue is an imbalance in domestic circulation.
Xu and Ma: “In the face of internal and external pressures, the key is still to do our own thing well, especially to take the initiative to increase domestic demand. In the face of Trump's tariff shock 2.0, we have enough self-confidence [充足的信心] to cope.”
Name: Liu Dian (刘典)
Position: Associate Researcher at the China Institute, Fudan University
Source: WeChat (6th November)
Tariffs of 60% or more would have an “even more profound effect” on China’s exports than those imposed during the first Trump administration.
They would quickly cause bottlenecks in certain industries, curtailing exports and GDP growth. Further restructuring of supply chains could benefit emerging market countries like Vietnam and Mexico.
The RMB exchange rate is likely to depreciate. This would be beneficial to China’s exporters, offsetting partly the negative impact of tariffs.
But depreciation carries risks for financial stability, and could lead to increased capital outflows. A balance must be struck, with monetary policy that is more targeted and agile [更加精准和灵活].
Exchange-rate management tools may be needed, such as increased monitoring of cross-border capital flows.
Loose monetary policy will be needed to support economic growth and maintain market liquidity.
Further opening up capital markets, along with internationalisation of the RMB, would introduce more foreign capital.
Trump’s re-election may increase asset price volatility. Measures may be needed to manage market liquidity management, guide expectations and support the stock market.
Trade frictions will increase fiscal pressure on local governments, especially those reliant on exports and related taxes.
Debt swaps (swapping high-interest debt for long-term low-interest debt) will reduce repayment pressures on local governments, improving their capacity for spending on infrastructure and public services to promote economic growth.
Other measures like transfers of state-owned assets and revitalising stock assets (盘活财政存量资金) could be used to reduce pressure further.
Local governments can play a role in boosting domestic demand. Local deficits, financed through issuance of special bonds, could be expanded to support infrastructure investment and social development projects.
Ultimately, fiscal stimulus will be needed. With broad fiscal deficits lower than in 2018, there is room for an increase, funded by issuing more special bonds and ultra-long-term special treasury bonds.
This investment should be directed into infrastructure investment, support for scientific and technological innovation, and stimulus for household consumption [居民消费刺激].
Support for innovation should include increased support for strategic emerging industries (战略性新兴产业) to increase their competitiveness in the global market.
Policymakers should make low-cost financing channels available for small and medium export-oriented enterprises hit by tariffs.
China’s industrial policy will need to respond to Trump’s policies, focusing on supporting medium and high-end manufacturing and technological innovation. External pressure on China’s semiconductors and high-end manufacturing fields is likely to increase. More investment will be needed in core technologies (核心技术), ensuring independent R&D and production capabilities.
Trump’s support for traditional energy may hit demand for renewables in the short term, but also gives China an opportunity to lead in global green technology.
China should focus on promoting development and cooperation in emerging markets.
Name: Lian Ping (连平)
Position: President and Chief Economist, Guangkai Chief Industry Research Institute; Chairman of the China Chief Economist Forum; Former Chief Economist, Bank of Communications
Source: CCEF (6th November)
Trump’s second presidency poses severe challenges for China’s real economy:
Increased uncertainty in trade relations
Risk of a “cliff-like decline” (断崖式下滑) in Sino-US trade
Restrictions in Sino-US science and tech cooperation in all fields
It may also affect the RMB’s exchange rate in the short term. Uncertainty and tariffs could lead to a temporary depreciation of the RMB.
Policy tools should be used to allow the RMB to depreciate in gradual stages (阶段性适度). This will help to ease external shocks.
In the long-term, China’s economic growth will recover and foreign capital will flow in as its markets open up further. As interest rates come down in the US, depreciation pressure on the RMB will ease.
Four sets of policies are needed. Firstly, consumption of services in China is too low. Policies aimed at accelerating income growth, rural land reform, urbanisation and increasing the wealthy’s “willingness to consume” (消费意愿) would all help improve the situation.
Lian: “Only when your body is strong can you withstand external blows”.
Secondly, China needs to diversify exports, developing trade and investment links with developing countries.
Thirdly, China needs to open up more, creating a better business environment for foreign investment and reducing the negative list of areas where it is prohibited.
Finally, as American companies reduce their foreign investments, China should support more companies to “go overseas” (走出去).
This includes the US, ultimately making decoupling impossible.
Name: Gu Wenjun (顾文军)
Position: Chief Analyst at ICWise, a well-known semiconductor research firm in Shanghai
Source: WeChat (13th November)
Biden’s focus was on curbing China’s development of high-end technology. Trump’s approach is all-encompassing, focusing on trade deficits and commodities. Trump will “take a scattergun approach to” (扫射) all commodities, and is not specifically focused on high-end chips.
Trump is expected to pressure international companies to build factories in the US. Subsidies will not get foreign companies to transfer the most advanced technologies to the US, so Trump is likely to repeal the CHIPS Act.
He will act unilaterally, coercing allies to follow him rather than working with them to restrict China’s access to semiconductors.
Trump wants to minimise the role of Chinese elements (中国元素) in the international industrial chain.
These efforts could include restricting the proportion of Chinese or even ethnic Chinese (中国人甚至华人) in high-tech supply chains. Any efforts to exclude Chinese from key positions in companies and universities could push many high-fliers to return to China.
Chinese companies that use components from international companies will struggle. American semiconductor companies are set to stop cooperating with Chinese suppliers.
This time friendshoring may not be possible. Only countries with a balanced trade relationship with the US will be spared from tariffs, which eliminates most countries with competitive manufacturing. Forced to go to the US or face sanctions, more foreign companies will leave China.
But for many, the Chinese market’s size makes it impossible to leave completely (不可能完全放弃). If two completely separate global supply chains do appear, some international companies will serve the Chinese market exclusively and return to China.
China has the world’s most efficient supply chain and should try to boost international investment and cooperation in China’s semiconductor industry.
US isolationism will ultimately backfire and China is well-placed to defeat sanctions. It has four particular strengths:
A new nationwide system for mobilising resources (新型举国体制) channels resources to achieve specific goals. China’s progress in semiconductors reflects the country’s “systemic advantages and resource integration” (体制优势、资源整合)
China possesses an enormous market, a complete industrial chain, and exceptionally high industrialisation efficiency, forming a cycle with the international market that is hard to break (难以切断的循环)
Reserves of highly skilled workers in science and technology fields
Competition between different regions to promote development of the industry
Trump’s policies will encourage further localisation of semiconductor production. His first term made China pay attention to the strategic importance (战略上重视) of semiconductors; the pandemic made China recognise the tactical importance (战术上重视) of semiconductors.
Gu: “The great progress made by China's semiconductors in recent years was to a certain extent caused by Trump's sanctions, so many people in the semiconductor industry thank Trump from the bottom of their hearts.”
It will awaken the chip industry from a period of complacency, where little attention was paid to issues like supply chain security.
Gu: “One prospers in hardship, but dies in comfort (生于忧患死于安乐). Now with Trump’s sanctions, the Chinese [chip] industry will pay more attention to supply chain security and localisation […] making it more resilient, flexible and resistant to risk.”
China must continue to recognise the importance of the chip industry. The development of the industry is a “Long March without end” (没有终点的长征). Policymakers need to strengthen beliefs in chips as central to new quality productive forces (新质生产力核心).
The government’s role should be limited to making up for the market’s shortcomings and focus on the minority of companies actually improving supply chain security. It should neither be absent, nor overbearing towards the market (政府不能缺位，也不宜越位).
Using the new national system (新型举国体制) and new chip rules (新型芯片规律), Gu is cautiously optimistic that China’s semiconductor industry will succeed.
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