Economic implications of Trump's presidency on China and global markets
This article is authored by Ananya Raj Kakoti, scholar, international relations, Jawaharlal Nehru University, New Delhi.
The inauguration of President Donald Trump for a second term on January 20, 2025, has introduced a new wave of economic policies with significant implications for China and the global market. Central to his agenda is the America First trade policy, which emphasises renegotiating trade agreements and imposing tariffs to protect United States (US) industries. This approach is poised to reshape international trade dynamics, particularly affecting China's export-driven economy.
On February 1, 2025, President Trump declared an economic emergency and imposed tariffs of 10% on all imports from China and 25% on imports from Mexico and Canada. These measures were justified by the administration as necessary to address issues such as fentanyl trafficking and immigration concerns. This immediate implementation has triggered responses from trading partners, setting the stage for a potential trade war.
In response to the US tariffs, both Canada and Mexico have announced retaliatory tariffs on American goods, raising concerns about disruptions to North American supply chains. This move could escalate trade tensions further and affect key industries such as agriculture, automotive, and technology.
The newly imposed tariffs on Chinese goods present several challenges for China's economy. Higher tariffs make Chinese exports more expensive in the US market, potentially leading to a decrease in demand. Given that the US is one of China's largest trading partners, such a decline could significantly impact China's gross domestic product (GDP) growth.
Many Chinese manufacturers are integrated into global supply chains that cater to US companies. Tariffs could compel these companies to seek alternative suppliers, leading to disruptions and potential losses for Chinese businesses. Additionally, the threat of a prolonged trade war may deter foreign investment in China, as companies might anticipate a less favourable trading environment. This could slow down technological advancements and industrial growth within the country.
The ripple effects of US-China trade tensions extend beyond the two nations, influencing global markets in several ways, such as, announcements related to tariffs have historically led to fluctuations in global stock markets. For example, after President Trump’s renewed threats of imposing tariffs, global stock futures saw declines due to investor anxiety over unpredictable trade policies. Companies reliant on Chinese manufacturing may relocate their production to other countries to circumvent tariffs, affecting economies in regions like Southeast Asia. This realignment can lead to both opportunities and challenges for emerging markets. Trade policies influence the demand and supply dynamics of commodities. Reduced Chinese exports could decrease the demand for raw materials, affecting global commodity prices and economies dependent on resource exports. Countries in Asia, Africa, and Latin America, which rely on trade with both the US and China, may face disruptions. Nations heavily dependent on raw material exports could see reduced demand, while others might benefit from opportunities to replace China in US trade networks.
In anticipation of these challenges, China is likely to adopt several strategies, such as, to mitigate reliance on the US market, China may enhance trade agreements with the European Union (EU), Africa, and Southeast Asia. Encouraging domestic demand can help China reduce its dependence on exports, fostering a more self-sustained economic model. Enhancing technological capabilities can help Chinese industries move up the value chain, making their products less susceptible to tariff impacts due to their unique value propositions. Through trade pacts like the Regional Comprehensive Economic Partnership (RCEP), China could solidify its economic ties within Asia to counterbalance US influence.
The reimplementation of protectionist trade policies by the US under President Trump's administration introduces a layer of uncertainty to the global economic landscape. While some sectors within the US may experience short-term benefits from protective measures, the long-term implications could include strained international relations and potential retaliatory actions. The EU and South Korea have expressed concerns over the shift in US trade policies, indicating possible friction in future trade negotiations.
Moreover, the potential for a trade conflict between the U.S. and China could slow global economic growth. As two of the world's largest economies, any significant downturn in their economic activities can have cascading effects, influencing everything from commodity prices to investment flows worldwide.
The EU may seek to strengthen its economic autonomy by pursuing closer ties with China and other global partners. However, it may also face US pressure to adopt similar tariffs, leading to complex trade dynamics. As an emerging economy, India might benefit from companies diversifying away from China. However, it will also need to navigate the complexities of aligning with U.S. policies while maintaining its own trade independence. African, Latin American, and Southeast Asian nations might experience a reshuffling of trade partnerships, creating both opportunities for growth and risks of marginalisation.
President Trump's second term heralds a period of economic recalibration, with the America First trade policy at its core. For China, this translates into navigating potential tariffs and adjusting its economic strategies to maintain growth. Globally, markets must brace for increased volatility as new trade policies unfold. The interconnected nature of today's economies means that shifts in US trade policies will invariably influence global economic dynamics, necessitating adaptive strategies from nations and businesses alike. As the world watches these developments, one thing is clear: The global economy is entering an era of uncertainty and transformation, requiring resilience and collaboration to navigate successfully.
This article is authored by Ananya Raj Kakoti, scholar, international relations, Jawaharlal Nehru University, New Delhi.