As Donald Trump’s return to the US presidency looms, China braces for the possibility of renewed trade tensions, akin to the uncertainty of his first term.
However, this time, China’s economy is in a more precarious position, with its reliance on exports significantly higher than before, potentially magnifying the impact of any trade conflicts.
In 2024, China posted a record trade surplus of nearly $1 trillion, accounting for more than 5% of its GDP, marking the highest level since 2015. This surplus played a central role in the nation’s economic expansion, contributing almost a third of its growth. While the trade surplus helped counterbalance the weak domestic economy, which faces challenges like deflation, low consumer demand, a sluggish property market, and a pressured currency, it also underscores China’s growing dependence on international markets.
Despite these challenges, Beijing has bolstered its toolkit for retaliatory measures in case of renewed tariffs. For instance, China could impose its own tariffs or expand export controls, including on critical minerals and technology. Some of these tactics were already evident in 2024, with China banning exports of key metals and sanctioning US defense firms.
Trump’s protectionist stance threatens to worsen China’s trade reliance, especially as some of its key trading partners, including the US, Europe, and Mexico, have begun to take more defensive economic actions. Since Trump’s first term, China has diversified its trade away from the US, but America remains a crucial destination for Chinese goods, contributing nearly 3% of China’s GDP. However, the rise of protectionism means that other countries may soon impose similar tariffs, making it harder for China to redirect exports to new markets.
Nonetheless, China’s efforts to expand trade partnerships, including initiatives like the Belt and Road Initiative and signing deals with nations in Southeast Asia, have helped reduce its direct reliance on the US. Still, retaliatory tariffs on US goods may not be as effective as they were previously. With other nations already imposing duties on Chinese goods, Beijing faces significant hurdles in finding new ways to counteract Western protectionism.
China’s strategy to mitigate the economic blow from renewed tariffs could involve shifting focus to domestic consumption and refocusing its economic model away from export reliance. China has already invested in stimulating local demand, and fiscal measures, such as stimulus payments to households, could play a crucial role in this transition. However, this shift would require sustained policy adjustments, which could take time to bear fruit.
With input from Bloomberg, Reuters, and the Financial Times.
