Does China actually have anything to gain from Donald Trump’s election victory? China’s stock markets may have plunged the day Trump was declared the next U.S. President due to uncertainty, but the country could actually be in for a good ride. With less than two months left before Trump is sworn in as the next U.S. President, China is finding itself at the center of media attention.
Trump’s election victory over Democratic rival Hillary Clinton cracked open pressing diplomatic, strategic, economic and military questions on U.S.-China relations. While American and Chinese experts are assessing the possible outcomes of Trump’s presidency, some suggest that he is actually good news for Beijing.
Trump is challenging U.S.-China relations
Trump’s election victory was met with shock from Chinese leaders, and that’s not surprising since the Chinese prioritize stability when working out their long-term foreign policies. Chinese leaders now face a great deal of uncertainty because Trump has pledged to slap a 45% tariff on imported Chinese goods.
Donald Trump is the antithesis of stability, and Beijing doesn’t know what to expect from the Republican President, who has pledged to label China a currency manipulator when he enters the White House on January 20. He has been slamming China since he launched his presidential campaign. The Republican has also pledged to change U.S. security commitments to allies, which could be either good or bad news for China.
In particular, Trump has suggested that Japan, a longtime ally of the U.S. and China’s enemy, should develop its own nuclear weapons and stop relying on America’s help and support. Thus, the President-elect seems to be setting off on a path of upsetting the regional security balance in Asia. And China is not exactly happy when foreign powers – especially the U.S. – attempt to challenge any kind of balance in its region.
Trump is a headache for China, but he’s not bad news
China’s Communist Party is obsessed with stability and predictability, and Americans electing someone who has had no political experience whatsoever is not an ideal situations for the Chinese. In fact, Trump’s presidency comes at one of the most inopportune times for President Xi Jinping’s country because it is in the middle of daunting reform challenges and its economy has slowed. In addition, China is about to be shaken up with its own leadership change when a new party elite will be put into power in late 2017.
Although Trump’s rival Hillary Clinton has certainly never been a fan of China and would also have created tensions in U.S.-China relations if she had been elected, at least the Chinese would have known what to expect from her. She has long criticized the nation for its apparent human rights violations and has repeatedly insisted that the U.S. must take a firmer stance against Beijing in the South China Sea conflict.
Chinese leaders tend to prefer incumbent party candidates with consistent policy lines. Trump, meanwhile, has no governance track record and has repeatedly challenged the Republican Party’s decades-long policies.
Will Trump ease U.S. pressure on China and retract from Asia?
But just because Trump is unpredictable doesn’t necessarily mean he will damage or challenge China’s influence in Asia, its economic advances or its diplomatic positions. In fact, the U.S. President-elect presents Beijing with a number of new opportunities. He may have pledged to pursue protectionist policy, but political experts believe the Republican President will think twice before actually implementing it.
Some believe Trump will actually be a pragmatic businessman, and any businessman realizes the potential benefits of making deals with China nowadays. But if Trump delivers on his presidential campaign promises and actually changes U.S. foreign policy, President Xi Jinping’s country could even benefit from it.
Apart from slamming China and promising to slap big tariffs on imported Chinese goods, Trump wasn’t that friendly to Japan or other U.S. traditional allies either. The U.S. President-elect has repeatedly said that Japan should stop relying on U.S. security guarantees and start developing its own nuclear weapons if it wants to counter any potential threat coming from China.
Under Trump, the U.S., which has always viewed protecting its Asian allies as one of the highest priorities in order to shrink China’s influence in the region, could actually shift its policy in Asia. That would mean America’s retrenchment from Asia, which China has long anticipated.
From a long-term perspective, Trump could ease America’s pressure on China and give more space for President Xi Jinping’s nation. But that scenario bears some uncertainties for China as well because China could have to deal with a Japanese military expansion, the very thing Beijing has tried to prevent for decades.
Benefits for China from U.S. tariffs on Chinese imports
In a research paper published a few days after Trump was declared the next U.S. President, Deutsche Bank Chief Economist Zhiwei Zhang outlined key implications for China. He argued that China is prepared to react to Trump’s pledges to slap big tariffs on imported Chinese goods as soon as in December. Each December, the Chinese government prepares an economic plan for the next year.
Zhang argues that in order to counter-balance the potential downside risk in exports, China will make both monetary and fiscal policies more expansionary in 2017.
“The decision on policy stance in 2017 will likely be made before the new government makes their trade policy clear,” Zhang wrote.
With Trump being a strong advocate of protectionist policy, China is expected to enhance its global influence by putting more resources into BRICS, “one-belt-one-road” and the China-Pakistan Economic Corridor (CPEC).
During his presidential campaign, Trump vowed to shift the focus of U.S. policies from foreign issues to domestic ones. This would present Beijing a highly-anticipated opportunity to ramp up its spending overseas and bolster its influence in the region.
Zhang also addressed the risk of a trade war between China and the U.S. Shortly after Trump won the U.S. presidency in November, a state-run Chinese newspaper published an article in which it threatened the new U.S. President with an all-out trade war that would include cutting iPhone sales.
Zhang argues that “the intensity of trade dispute on product/industry level will likely pick up,” though it’s difficult to estimate the outcomes at this stage. Deutsche Bank’s chief economist also noted one interesting thing. He said that imposing tariffs on China would mean imposing tariffs on many countries in the world with global supply chains. It’s because many goods are produced by multinational companies, including many based in the U.S. In fact, according to Zhang’s estimations, as much as 53% of China’s exports to the U.S. use some imported parts.
China’s win after Trump’s victory: More trade and less capital outflows
In a research paper shortly after Trump was declared the next U.S. President, Natixis economist Alicia Garcia Herrero argued that Trump’s victory is “good news” for Beijing, as it ultimately means “more trade and less capital outflows.” While Herrero agrees that the direct effect of big tariffs on China is, of course, bad for China, there is also the indirect effect, which is actually positive for Beijing.
“The indirect effect is, positive, though goes in two main directions,” Herrero wrote. “First, the Transpacific Partnership will not be passed through a Republican Congress, which will create additional space for China to sign either regional or bilateral agreements with other Asian economies (e.g. RCEP).”
While Trump has already said that the U.S. will quit the TPP on his first day in the White House, Herrero argues that Beijing has already taken steps towards a regional trade agreement. Herrero also adds, citing Mexico as “the best case in point,” that Trump’s protectionism would allow China to improve its economic ties with nations “long under strong U.S. influence.” If Trump slaps big tariffs on imported Chinese goods, it would also be a good thing for Beijing in the long term.
“All in all, given the increasing share of Chinese exports to emerging economies, and in particular emerging Asia may well counterbalance the reduction in exports to the US as the share of exports to emerging economies are already nearly double that of the US,” wrote.
So it looks like China could be making solid steps towards becoming the world’s next superpower. That’s ironic because Trump’s protectionist policies are supposed to prevent that and guarantee that the U.S. remains the one and only superpower.
