China’s Economic Revival Efforts Face Potential Obstacles from Trump’s Policies

China has introduced fresh initiatives designed to stimulate its struggling economy, anticipating a potential second term for Donald Trump as president. The nation intends to address local government debt amounting to tens of billions of dollars, aiming to prevent it from impeding economic expansion. Donald Trump secured victory in the US election with a platform advocating substantial import duties, such as tariffs reaching 60% on products manufactured in China. His electoral success is now expected to impede President Xi Jinping’s objectives of developing the nation into a technological leader, and to intensify tensions between the globe’s two largest economies. A downturn in the real estate sector, increasing government indebtedness and joblessness, and diminished consumer spending have contributed to a deceleration of Chinese economic growth since the global health crisis. Consequently, the significance is greater than ever for the recent declaration by the Standing Committee of the National People’s Congress (NPC), which serves as the executive arm of China’s legislative branch. In his initial presidential term, Trump imposed duties of up to 25% on products from China. According to China analyst Bill Bishop, Trump’s statements regarding his proposed tariff plans should be regarded seriously. “I think we should believe that he means it when [he] talks about tariffs, that he sees China as having reneged on his trade deal, that he thinks China and Covid cost him the 2020 election”. The strain originating from Washington did not diminish following Trump’s departure from the White House in 2021. The Biden administration maintained these policies and, in certain instances, expanded them. Although the initial round of Trump’s tariffs caused hardship for China, the nation currently finds itself in a considerably more susceptible state. The economy has been striving to regain its pre-pandemic growth rates since it suddenly lifted its stringent Covid limitations two years prior. Rather than achieving a broadly anticipated rapid rebound, China consistently generated unfavorable economic reports. Prior to Trump’s electoral win and subsequent to China initiating economic support measures in September, the International Monetary Fund (IMF) reduced its projected annual growth rate for the nation. The IMF currently forecasts the Chinese economy will grow by 4.8% in 2024, aligning with the lower boundary of Beijing’s “about 5%” objective. For the subsequent year, it anticipates China’s yearly growth rate will decline further to 4.5%. The most recent strategy entails allocating an extra 6 trillion yuan ($840bn) between the present and 2026 to assist local administrations that have accumulated excessive debt burdens. Over several decades, local authorities have contributed to national growth by securing substantial loans, a significant portion of which financed infrastructure developments. However, a slump in the real estate sector has rendered some municipalities incapable of settling their financial obligations. Nevertheless, the nation’s leadership was not completely unprepared for the conclusion of several decades of exceptionally rapid growth. In 2017, President Xi stated that his nation intended to shift from “rapid growth to a stage of high-quality development.” This phrase has subsequently been frequently employed by Chinese authorities to characterize a move towards an economy powered by sophisticated manufacturing and environmentally friendly sectors. Yet, certain economists contend that China cannot solely rely on exports to resolve its difficulties. According to Stephen Roach, former chairman of Morgan Stanley Asia, China faces the danger of experiencing the kind of prolonged economic stagnation that Japan underwent following the collapse of its stock and property bubbles in the 1990s. To avert such an outcome, he suggests China ought to leverage “on untapped consumer demand” and transition away from “export and investment-led growth”. This approach would not only foster more enduring growth but also reduce “trade tensions and [China’s] vulnerability to external shocks,” he states. Such a more resilient economic framework might enable China to counteract the dangers presented by Trump’s potential re-election. However, China, historically recognized as the global manufacturing hub for inexpensive products, is now endeavoring to mirror that achievement with technologically advanced exports. The country already holds a leading global position in solar panels, electric vehicles (EVs), and lithium-ion batteries. The International Energy Agency (IEA) reports that China currently produces a minimum of 80% of solar panels. It also stands as the largest manufacturer of EVs and their corresponding power cells. Last year, the IEA stated that China’s investments in clean energy constituted one-third of the global aggregate, as the nation consistently demonstrated “remarkable progress in adding renewable capacity.” “For sure there is an overall effort to support high-tech manufacturing in China,” states David Lubin, a senior research fellow at the London-based think tank, Chatham House. “This has been very successful”, he further comments. Shipments of electric vehicles, lithium-ion batteries, and solar panels surged by 30% in 2023, exceeding one trillion yuan ($139bn; £108bn) for the first time, as China further solidified its worldwide leadership in these respective sectors. This expansion in exports has contributed to mitigating the impact of the continuing real estate crisis on China’s economy. “China’s overcapacity will increase, there is not doubt about it. They have no other source of growth,” remarked Alicia Garcia-Herrero, chief economist for the Asia Pacific region at the investment bank Natixis. However, concurrent with these elevated exports, there has been growing opposition from Western nations, extending beyond just the United States. Only last month, the European Union raised duties on Chinese-manufactured EVs to a maximum of 45%. “The problem right now is that large recipients of those goods including Europe and the US are increasingly reluctant to receive them,” stated Katrina Ell, research director at Moody’s Analytics. Presently, with Trump poised to return to the Oval Office with a commitment to heavily tax Chinese imports, Beijing must consider if its most recent initiatives to stimulate its decelerating economy will prove adequate.