China: Ramifications of a Trump administration - SocGen

Wei Yao, Research Analyst at Societe Generale, suggests that at this moment, there is great uncertainty and little visibility as to the next four years of US policy under the Trump presidency and for China; it will mean a more difficult global environment for trade.

Key Quotes

“There would be heightened pressure first in the form of more trade cases, but materially damaging measures, including punitive tariffs on certain goods, could only come later. Labelling China as “a currency manipulator” is unlikely in 2017 unless there were quick changes to the Treasury’s existing criteria. Therefore, we see incremental drags on China’s growth over time.”

“In responding to the challenges, Chinese policymakers are likely to speed up capacity reduction in the steel sector, but any material acceleration on the reforms that are more negative to growth would be less likely. A measured step-up in fiscal and monetary easing could be adopted to counter the drag. Overall, we expect modestly slower trend growth, with less of a contribution from exports but a greater contribution from fiscal easing.”

“Lastly, we can also see that Trump’s “America First” policy might cause profound geopolitical shifts. From a Chinese perspective, this may be seen as an opportunity to expand its influence in Asia via, for example, a bigger push of its “one belt, one road” initiative. Domestically, an image of a stronger nation amid perceived external hardship might make the domestic economic slowdown less unpalatable to Chinese people.”