What will the possible return of Trump to the U.S. Presidency mean for China’s economy?
Background: On 5 November 2024, Americans will vote in the Presidential Election. After losing to Joe Biden in 2020, Donald J. Trump, the Republican candidate, has a good possibility of being re-elected. In his first term, Trump launched a trade war with China, and he has already stated his intention to introduce new trade measures if re-elected.
This note has been put together by CSRI based on the analysis and observations of two of our advisors who specialise in China’s economy.
A ratcheting up of the USA-China trade war? Trump has already outlined that if he returns to power, he would consider introducing 60% tariffs on Chinese goods. If he sticks to his word, this could substantially impact China’s manufacturing and export sectors and clash with Beijing’s central policy of promoting "new quality productive forces," which essentially means supporting the manufacturing sector, such as electric vehicles (EVs) and EV batteries.
It would hurt Chinese private medium-sized enterprises very badly, as their primary growth stream now largely comes from exports, with the U.S. being the world’s leading consumer. China’s digital technology industry would be largely unscathed from U.S. tariffs, but it would hurt many exporters such as SHEIN, Temu or similar businesses that export cheap goods.
Could the services sector be next? Trump’s trade actions in his first term and those being proposed on the campaign trail are mainly focused on goods. However, it remains an open question of how the U.S. could expand these tariffs to cover services or ‘softer goods’, which include Chinese e-commerce apps (e.g. Temu, Shein, AliExpress), Chinese social media (e.g. TikTok), Chinese payment systems (e.g. UnionPay, used by Russia to avoid U.S. financial sanctions in Southeast Asia, as well as QR-based systems like Alipay), AI consumer software, travel services (e.g. Trip.com), video game producers, web services, education or travel services.
Scrambling for alternative markets. If Trump imposed high tariffs, Chinese companies would be forced to find alternative markets for their vast surplus of goods quickly. With the European Union, alongside other major economies like Brazil, Indonesia, and India, introducing tariffs and clamping down on Chinese imports in response to its excess capacity, particularly in the green technology sector, it’s unclear how easy it will be for Chinese companies to find alternative markets. In the particular case of Chinese EVs, there are simply not enough other developing markets that have the demand, can afford them, or have the charging infrastructure to support them.
China’s export dilemma. Xi Jinping’s export-led economic approach, which seeks to export China back to growth and find markets for its excess manufacturing capacity, is heavily reliant on access to the U.S. and European markets. There are simply few other places that can afford large numbers of Chinese imports where Chinese companies can make profits. Therefore, without access to Western markets, it’s unclear whether this strategy will find much success.
Pre-empting Trump tariffs. In response to Trump being re-elected, many Chinese companies will seek to move their operations and sales to other parts of Southeast Asia to dodge U.S tariffs and may consider a splurge on overseas acquisitions and property in the USA, Singapore, or Europe out of fear of restrictions coming in that would block these acquisitions later.
Splash victim. Trump has also pledged to introduce 10% tariffs on all goods imported into the USA. As a result, many of the U.S.'s closest partners would be caught in the crossfire. The likely outcome would be economic pain for export-led economies like Germany, South Korea, and Japan, while Mexico and Canada would be clear beneficiaries as they would be protected temporarily from tariffs through the United States–Mexico–Canada Agreement, which is up for review in July 2026.
Blocking Canada and Mexico as a backdoor into the U.S. market. The current Biden Administration, with its imposition of 100% tariffs on Chinese EVs, and a second-term Trump Administration both oppose and would take strong measures to prevent Canada and Mexico from being used by Chinese companies as a backdoor into the U.S. market. This is likely an area of continuity that would exist if Trump were re-elected.
Does Vance's selection as vice-presidential candidate increase the likelihood of a heightened USA-China trade war? Trump's decision to pick Senator JD Vance as his running mate shows that he intends to double down on tariffs. Vance could also be a force multiplier when it comes to Trump's previous China policy, as he has based his platform on bringing manufacturing back to the Rust Belt states, which was his investment thesis when he ran venture capital funds for five years before his career in the Senate.
The cost to the U.S. consumer. On the U.S. side, Trump tariffs would raise all sorts of prices for consumers. In the long term, those might be mitigated by higher wages from growing manufacturing employment, but it’s not clear how long that would take or if those benefits would really equal the greater costs paid by consumers.
Trump and the art of the deal. Still, Trump has a lot of bluster and a love for “deals,” which could turn in unpredictable directions. He has already indicated on the campaign trail that he would be open to Chinese technology companies setting up factories in the USA in response to an increase in tariffs. In the case of Chinese automakers, this would allow them to invest in the US, bringing in capital, knowledge, and job creation. They may also be given access to the Inflation Reduction Act, if not revoked by his administration, subsidies/tax breaks under a second term Trump Administration. If that means the US buying from Chinese technology supply chains, this would allow a limited respite for companies like BYD and others in the solar and battery sectors that have been hit by tariffs.
Trump’s turn on TikTok. Trump previously sought to push Chinese technology company ByteDance to sell TikTok, he now “supports” TikTok and opened an account in June 2024 to appeal to younger voters. It is unclear whether he would seek to repeal the 2024 law that requires the divestiture of ByteDance, especially as those around Trump would profit, including former Trump Treasury Secretary Steven Mnuchin, who has put together a consortium to buy it. As a case study, Trump’s shifting views on TikTok demonstrate that, in the end, he may well support the deepening of U.S. and Chinese trade and investment on his terms.