Mumbai: Chinese exports to the United States could suffer a massive setback of $420 billion if the Republican Party’s nominee Donald Trump emerges victorious in the US Presidential election.
Arguing that China has deliberately undervalued its currency by as much as 40 per cent to provide competitive advantage to its exporters at the expense of American manufactures, Mr Trump had vowed to reclaim millions of American jobs and revive American manufacturing by putting an end to China’s illegal export subsidies and lax labour and environmental standards.
Quoting Kevin Lai, the Hong Kong-based chief economist for Asia (excluding Japan) at Daiwa Capital Markets, a Bloomberg report said Mr Trump’s suggestion for a 45 per cent tariff on Chinese goods to narrow the trade deficit with America would spark an 87 per cent decline in China’s exports to the US, a decline of $420 billion.
That would, over time and factoring in multiplier effects, mean a 4.82 per cent blow to China’s gross domestic product, or in absolute numbers about a half a trillion dollars’ worth. It doesn’t even take into account an estimated $426 billion in foreign direct investment repatriation if companies started to withdraw.
“A loss of GDP or a slowdown in GDP growth of this scale would be staggering. Eventually, Mr Trump and his administration may actually compromise with a watered-down version of tariffs, “ Mr Lai wrote in a note titled What would a Trump presidency mean for China.
Even if the proposed tariff rate is watered down to 15 per cent, Mr Lai estimates that the resulting loss of GDP for China would be 1.8 per cent.
Mr Lai claimed the tariffs are likely to be placed on a wide range of goods from machinery and tools to toys and home appliances. “These tariffs would certainly be detrimental for China, as they would for multinational companies operating in China. These companies would probably have to make plans to relocate to other countries. China would find itself losing to many other developing economies that were not being targeted by Trump.”
The proposal could also spell trouble for China on its balance of payment front that could widen the capital account deficit and put downward pressure on the Yuan.
