The Coming Storm?

Macro Monday:

Between 1980 and 2004, trade between the US and China increased from $5 billion to $231 billion. Much of this increase was assisted by Clinton’s US-China Relations Act of 2000 which laid the foundations for China joining the WTO a year later. By 2022, bilateral trade between the two countries was estimated to have surpassed $750 billion.

?

The Coming Storm?

As market participants continue to consider the potential fall out of the forthcoming Trump administration whacking on tariffs, attention turns to what reciprocal tit for tat polices could look like.

One of the most important considerations is how Beijing could react to Trump placing import tariffs on goods coming from China. With China representing the US’ second largest trading partner in terms of imports, the stakes could hardly be higher, and some are bracing for a continuation of the fragile relations seen during Trump’s first term and the subsequrnt response from China .

As cited in The Washington Post, Wang Yiwei of Beijing’s Renmin University surmised that Beijing are likely to retaliate hard from the outset in order to have greater leverage at the negotiation table further down the line.

The same article also suggested that Beijing will be better prepared this time around, with China likely to target key US agricultural products such as soybeans and corn given its impact on US farmers – a workforce that Trump is keen to keep onside particularly in the run up to the 2026 midterms.

The piece also suggests that that Beijing could look emplace sanctions and export control powers on goods heading for America, measures which could have a major impact on US companies’ supply chain. Examples here include Beijing putting export controls on minerals which are central in the manufacturing of solar panels.

These tit-for-tat considerations are of course contingent on what policies Trump actually goes through, something which is not easy to predict. As The Diplomats’ Brian Wong has argued, “Trump’s likely approach to China […] is best likened to Russian roulette.”

Here, Wong says that Trump “evidently has the penchant for risky gambits and transactional diplomacy” and many of the people Trump has appointed to key positions in the White House are deeply hawkish towards China.?Some however have argued that Trump will use the threat of a 20% tariff only as a means of negotiation rather than a strict ‘end-result’ policy. For example, Trump may try use the threat of the tariffs to get other countries to lower their own tariffs on American goods.

As alluded to, many of Trump’s key appointments to the White House are those that will look to toe a hard line in relation to China.

For example, Marco Rubio – who will serve as Secretary of State under Trump – has long been a hardliner on China arguing that that “Communist China will still be a more formidable adversary than any the United States has faced in living memory". This follows an earlier comment on X that "Communist China is not, and will never be, a friend to democratic nations".

Hence, as market participants continue to consider how economic and political relations between Washington and Beijing will play out come January, all eyes are on Trump and his inner circle for any further insight into policy proposals.