What would a second Trump presidency mean for China? Goldman Sachs weighs in

BEIJING
—
If

Donald
Trump
wins
the
U.S.
presidential
election,
his

plans
for
60%
tariffs
on
Chinese
goods
could
be
a
“major
downside
growth
risk”
to
China,
according
to
Goldman
Sachs.

Chances
of
Trump
becoming
the
next
president

ticked
higher

after
he
survived
an
assassination
attempt
on
Saturday
and
selected
former
critic
JD
Vance
as
his
running
mate
two
days
later.

“Right
now
exports
are
a
major
bright
spot
in
the
Chinese
economy,
and
I
think
the
policymakers
might
want
to
be
prepared,”
Hui
Shan,
chief
China
economist
at
Goldman
Sachs
told
CNBC’s
“Squawk
Box
Asia”
on
Tuesday.

“We
are
seeing
tariff
narratives,
not
only
in
the
U.S.,
but
across
other
major
trading
partners
of
China’s,”
she
said.
“So
this
is
not
going
to
be
a
sustainable
driver
of
growth
for
China.” 

The
U.S.
is
China’s
largest
trading
partner
on
a
single-country
basis,
while
the
European
Union
has
fallen
behind
Southeast
Asia
as
China’s
largest
regional
trading
partner.
Trump
had
raised
duties
on
Chinese
goods
when
president
in
2018
and
has
threatened
to

increase
them
to
60%
if
reelected
this
fall.

The
contribution
of
goods
exports
to
real
GDP
growth
in
China
for
the
second
quarter
of
this
year
was
the
highest
since
the
first
quarter
of
2022,
when
Covid
restrictions
limited
domestic
economic
activity,
according
to
Citi.

Meanwhile, Beijing’s
push
to
develop
high-end
manufacturing
has
not
yet
been
able
to
fully
offset
a
real
estate
slump
and
lackluster
consumption.

U.S.
officials
such
as
Treasury
Secretary
Janet
Yellen
have
said
that
China’s
policies
to
boost
its
industrial
capability
and
technological
self-reliance
have
led
to

U.S.
job
losses.

In
his
first
interview
since
he
was
selected
as
Trump’s
running
mate,
Vance
told
Fox
News
that
instead
of
the
war
in
Ukraine,
China
was
the
“real
issue”
for
the
U.S.
and

posed
the
“biggest
threat.”

The
Biden
campaign
has

criticized
Trump’s
pick,
saying
the
choice
was
deliberately
made
“because
Vance
will
do
what
Mike
Pence
wouldn’t
on
January
6:
bend
over
backwards
to
enable
Trump
and
his
extreme
MAGA
agenda,
even
if
it
means
breaking
the
law
and
no
matter
the
harm
to
the
American
people.”

Supporters
of
Trump,
who
was
president
at
that
time,
had
stormed
the
U.S.
Capitol
in
an
attempt
to
overturn
the
2020
presidential
election
results
on
January
6,
2021.

Asked
about
Vance’s
comment,
China’s
Ministry
of
Foreign
Affairs
spokesperson
Lin
Jian
said
Tuesday
at
a
daily
press
briefing,
“We
are
always

opposed
to
making
China
an
issue
in
U.S.
elections.”

China’s
economy
grew
by
4.7%
in
the
second
quarter
compared
to
a
year
ago,
missing
economists’
expectations
and
bringing
growth
for
the
first
half
of
the
year
to
5%.
It
prompted
some
calls
for
more
stimulus
if
the
world’s
second-largest
economy
is
to
reach
5%
growth
for
the
full
year.

The
downside
risk
from
potentially
higher
U.S.
tariffs
under
Trump
would
primarily
come
from
the
greater
uncertainty
and
tighter
financial
conditions,
as
well
as
pressure
on
the
Chinese
yuan,
Goldman’s
Shan
said.
She
pointed
out
that
tariffs
in
2018
did
not
significantly
dent
China’s
exports
to
the
U.S.

More
recent
data,
however,
showed
a
slowdown
in
that
trade.
China’s
exports
to
the
U.S.

rose
by
a
modest
1.5%
in
the
first
half
of
the
year.

“Policymakers
need
to
think
about
domestic
demand
and
focusing
on
something
that
is
more
persistent
and
sustainable
for
the
growth
outlook,”
Shan
told
CNBC
on
Tuesday.

If
60%
tariffs
are
imposed,
“that’s
pretty
high
and
we
think
the
implication
for
the
macro
economy
is
pretty
significant,”
she
added.

So
far,
China
has
held
back
on
stimulus
measures. The
country’s
top
leaders
are
meeting
in
Beijing
this
week
for
a

highly
anticipated
Third
Plenum,
which
is
expected
to
determine
long-term
economic
policy
goals.

Citi
analysts
said
Monday
that
weak
retail
sales
and
disappointing
second-quarter
growth
won’t
be
enough
to
convince
Beijing
to
increase
support
for
the
economy.

“Policymakers
may
tolerate
short-term
weakness
amid
the
structural
shift
of
the
property
sector,”
the
analysts
said.
“More
concerns
on
trade
and
external
relationships
could
also
lead
China
to
save
the
policy
space
for
future.”

Citi
forecasts
5.0%
growth
in
real
GDP
growth
for
China
this
year.

China’s

U.S.
dollar-denominated
exports
grew
by
3.6%
in
the
first
six
months
of
the
year
after
better-than-expected
global
demand
for
Chinese
goods
in
recent
months.

“Manufacturing
and
infrastructure
investment
may
stay
robust
and
exports
should
stay
in
decent
[year-on-year]
growth
in
[the
third
quarter],
with
possible
front-loading
of
shipment
orders
in
[the
second
half
of
the
year]
due
to
fears
of
higher
tariffs,”
Tao
Wang,
head
of
Asia
economics
and
chief
China
economist
at
UBS
Investment
Bank
said
in
a
note
Tuesday.

She
said
Chinese
authorities
would
likely
be
reluctant
to
roll
out
major
stimulus
in
the
next
few
months
in
order
to
save
resources
in
the
case
of
greater
economic
weakness
and
increased
tariffs.

UBS
forecasts
4.9%
growth
for
China’s
economy
this
year.

Not
all
analysts
believe
a
possible
Trump
presidency
will
prove
detrimental
to
China,
though.

Ben
Harburg
of
Corevalues
Alpha
told
CNBC
on
July
4
that
he
believes
China
is
more
likely
to
have
“positive”
trade
outcomes
under
a
Trump
presidency,
given
the
ex-president’s
“transactional
nature.”

“He’s
a
dealmaker,
and
like
any
negotiator,
he
likes
to
kind
of
set
the
bar
low,
and
kind
of
set
his
price
low,
and
then
work
up
from
there,”
the
portfolio
manager
said
on
“Street
Signs
Asia.”

Speaking
on
foreign
policy,
Harburg
pointed
out
that
another
Biden
term
would
also
mean
continued
tariffs,
as
well
as
“encroachment
on
Chinese
domestic
issues”
—
which
would
not
significantly
improve
China’s
economy,
nor
U.S.-China
relations.

He
said
a
Trump-China
partnership
would
signify
“a
more
binary
potential
for
a
positive
outcome
for
China.”

CNBC’s
Sonia
Heng
contributed
reporting
from
Singapore.