Friday, November 8, 2024

Analysis-Ready or not? How China scrambled to counter the second Trump shock

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By Antoni Slodkowski, James Pomfret and Laurie Chen

BEIJING/HONG KONG (Reuters) – After Donald Trump first stormed the White House eight years ago, rattled Chinese leaders responded to his tariffs and fiery rhetoric with force, resulting in a trade war that plunged ties between the globe’s largest economies to multiyear lows.

This time around, Beijing has been preparing for Trump’s return by deepening ties with allies, boosting self-reliance in tech, and setting aside money to prop up the economy that is now more vulnerable to fresh tariffs already threatened by Trump.

While some retaliation to those moves might be unavoidable, China will focus on exploiting rifts between the U.S. and its allies, experts say, and aim to lower the temperature to help strike an early deal to cushion the blow from trade friction.

Zhao Minghao, international relations expert at Shanghai’s Fudan University said China probably wouldn’t replay the playbook from the first Trump presidency when Beijing had a very strong reaction to Trump’s moves on tariffs.

He pointed out Chinese President Xi Jinping’s message to Trump from Thursday, in which Xi called for “cooperation” and not “confrontation,” emphasising “stable, sound and sustainable” relations between the two superpowers.

“Trump is not a stranger to Beijing at this time,” Zhao told Reuters. “Beijing would respond in a measured way and make efforts to communicate with the Trump team.”

While Chinese tech giants are now far less reliant on U.S. imports, the economy – hit by a massive property crisis and saddled with unsustainable debt – is in a weaker position than in 2016, struggling to eke out 5% growth compared to 6.7% then.

To make things worse, Trump has pledged to end China’s most-favored-nation trading status and slap tariffs on Chinese imports in excess of 60% – much higher than those imposed during his first term.

Fudan’s Zhao said Beijing has this scenario gamed out but expects tariffs to come in below the level pledged on the campaign trail because “that would significantly push up the inflation in the U.S.”.

Still, that threat alone has unnerved producers in the world’s largest exporter because China sells goods worth more than $400 billion a year to the U.S. and hundreds of billions more in parts for products Americans buy elsewhere.

Li Mingjiang, a scholar at the Rajaratnam School of International Studies in Singapore, said that as a result, the Chinese economy might require even more stimulus than the $1.4 trillion expected on Friday.

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