US-China Trade Relations Under Trump 2.0

[Excerpted from Caixin article on November 11. 2024, see https://bit.ly/3CropdN]

At noon on January 20, Donald Trump will stand at the U.S. Capitol to take the oath of office, marking his return as the 47th president after a historic comeback. Following a resounding victory in November, he becomes the first former U.S. president in 132 years to reclaim the office. Trump’s second term begins with a Republican majority in Congress, granting him unique authority to advance his agenda, including renewed, aggressive trade policies toward China.

A Strengthened Republican Platform

Trump’s victory and Republican control of the Senate and House clear a path for his priorities, from heightened tariffs to an "America First" approach to foreign policy. Analysts suggest his next two years will likely redefine America’s domestic and global stance, with an assembled team aligned closely with his vision.

Loyalty-Driven Cabinet

Trump’s cabinet choices reflect lessons from his first term, with “loyalty” a primary qualification, according to Howard Lutnick, co-chair of Trump’s transition team. Potential candidates for economic roles include longtime Trump allies John Paulson and Larry Kudlow, who may help shape the administration's tax-cutting and deregulatory stance. Although Kudlow has privately questioned tariffs, Trump appears focused on continuity with a loyal team in economic policy.

Robert Lighthizer, a key player in Trump’s first-term protectionist policies, is likely to take on a significant trade role, advocating for an intensified stance on China, including a proposed 60% tariff on Chinese goods. Trump's foreign policy picks, such as Senators Bill Hagerty and Marco Rubio, also share a hardline perspective on China, supporting the administration's “decoupling” goal.

A New Economic Vision

Central to Trump’s second-term agenda is a reimagined economic plan: imposing a blanket 10% to 20% tariff on all imports while reducing federal income tax. The goal is to boost domestic production, yet economists are divided on its impact. While proponents argue it could invigorate U.S. manufacturing, critics caution it might escalate inflation, disrupt supply chains, and increase the national deficit. Research from institutions like the Wharton School and the Peterson Institute predicts that Trump’s proposed tariffs and tax cuts could worsen the deficit by up to $5 trillion over the next decade.

Intensifying the U.S.-China Trade Standoff

While U.S.-China relations weren’t central to the 2024 campaign, Trump’s return is reigniting questions about trade policy. His campaign promises to reduce dependence on China through tariffs, removal of China’s most-favored-nation (MFN) status, and tightened controls on technology exports could destabilize trade between the world’s two largest economies. Analysts note that full revocation of MFN status could significantly impact both economies, with potential ripple effects on job markets and global supply chains.

Some experts, like Martin Chorzempa from the Peterson Institute, suggest the new administration views U.S.-China decoupling as crucial in the coming decade. Trump may wield tools like the Specially Designated Nationals List (SDN List), a powerful sanctions mechanism, which could disrupt Chinese companies’ access to the global economy if implemented.

A Global Impact on Trade and Diplomacy

The U.S.-China economic competition also poses challenges for U.S. alliances, as Trump’s return could influence Sino-European relations. Experts suggest that China may respond by focusing on domestic resilience rather than directly engaging with U.S. policies. According to Zhao Hai from the Chinese Academy of Social Sciences, China’s focus on innovation and self-reliance might be its best approach.

With rising global tensions, geopolitical experts like Ian Bremmer emphasize the need for diplomacy between the U.S. and China to address shared challenges, including conflicts involving Russia and the Middle East. Dialogues between the two powers, he argues, will be essential to managing global stability in the face of shifting economic policies and alliances.