"Trump Trade War 2.0 Causes 2%P Drop in China's GDP"

"To Offset 60% Tariffs, a 583 Trillion Stimulus Package Needed"

With former President Donald Trump winning the U.S. presidential election, there is a forecast that the China domestic gross domestic product (GDP) could decline by 2 percentage points if the U.S.-China trade war intensifies.

According to Bloomberg News on the 7th (local time), Macquarie economists projected that China's exports could decrease by about 8% due to the pledge to raise tariffs on Chinese imports to 60%. Considering the impact on corporate capital expenditure and business confidence, the effect on GDP is significant.

Former President Donald Trump elected in the U.S. presidential election Reuters Yonhap News

They stated that a stimulus package worth 3 trillion yuan (approximately 583 trillion won) would be necessary to offset the 60% tariff. Additionally, another 3 trillion yuan would be needed separately to recover sluggish domestic consumption.

Economists Larry Hu and Wei Xiao Jang said, "Trade War 2.0 could end China’s sustained growth model, which was mainly driven by exports and manufacturing," adding, "The next growth model could again be driven primarily by domestic demand, especially consumption, as it was in the 2010s."

The 60% tariff is also expected to impact the U.S. economy. Bloomberg Economics forecasted that if the 20% universal tariff promised by Trump and the 60% tariff on Chinese imports are applied, and China retaliates with trade measures, the U.S. GDP could decrease by 0.8% by 2028, while inflation could rise by 4.3%.

During Trump’s first administration, the effective tariff rate on Chinese imports increased from 3.1% in early 2018 to 19.3% in early 2020. According to Macquarie, about 66% of Chinese imports were subject to additional tariffs. In response, Chinese companies diversified their markets and exported to the U.S. via third countries to maintain stable exports. However, if the U.S. raises tariffs globally, this strategy can no longer be utilized.

Macquarie economists said, "In reality, the tariff increase may be smaller and narrower in scope than what Trump promised," adding, "As a result, China may not respond preemptively but could decide the scale of future stimulus measures based on the actual tariffs imposed." They also noted that the upcoming meeting of the Chinese Communist Party Central Politburo next month could provide clues about China’s strategy and potential responses.