HOPEFULLY the congratulation of the Chinese President Xi Jinping to newly elected President Donald Trump would remove all barriers and bitter hang-over created by protectionism, America-First, sanctions and last but not the least, non-cooperation on global climate change. However, the immediate reaction of the Asian currency and stock markets indicate the opposite direction. It seems that despite constant political hype China’s foreign policy toward the US will be consistent, banking on the principles of mutual respect, peaceful coexistence and win-win cooperation showing the Chinese peaceful wisdom of building bridges of mutual understanding, conflict resolution through dialogue, diplomacy and development and implementing a policy of openness, modernization, economic globalization and international cooperation with global shared prosperity.
The Chinese Foreign Ministry spokesperson Mao Ning, responding to a question related to the election result and potential additional US tariffs on Chinese goods, termed the US presidential election an internal affair of the US. Therefore, political sanity should prevail because China and the US are the major powers and top two economies in the world, so they have significant roles to play and responsibilities to shoulder. Thus there should not be any zero-sum game, more confrontation that would not only be good news to the peoples of China and the US, but also the rest of the world. Critical analysis reveals that China’s stimulus plans and currency management would be in the line of fire under the presidency of Trump which should be further strengthened and institutionalized. Uncertainty would be the main factor.
It is reality that the initial market reaction to a Trump win has been clearly negative for the Chinese renminbi, moving up from 7.10 to as high as 7.17. In terms of trade and investment both would be in a negative zone as exports to the US could be further reduced and high tariffs may encourage Chinese firms with a high proportion of US customers to accelerate expansions abroad to mitigate the impact of tariffs. Many experts fear the Chinese currency devaluation in the near future but the author does not agree with it. The Chinese RMB will be strong and stable.
In case of a severe trade war between the US and China, both economies could face substantial challenges, impacting their companies and destabilizing regional and global markets. The initial trade war was a disruptive event, catching businesses and investors off guard. This time, however, Trump’s proposed tariffs have been widely anticipated, likely reducing unexpected shocks, though investor adjustments may remain gradual. US tariffs are projected to take effect by the third or fourth quarter of 2025 or early 2026, which might limit immediate effects on China’s currency outlook. Consequently, the Chinese currency is expected to retain relatively low volatility compared to other Asian currencies as markets brace for any potential policy shifts.
It seems that some knee-jerk market sentiments will be downgraded but domestic economic developments should play a larger role in the growth outlook than the potential shock from an escalation of tariffs. The US president is widely expected to ramp up tariffs in his second term and a 60 percent tariff call may be a starting point for negotiations rather than a gradual approach. There are two roads to narrowing the US-China trade deficit: either reducing China’s exports to the US or increasing China’s imports of US goods. Keeping in view its multiplier effects on inflation and job creation, the author assumes that the increasing imports of the US goods would also be a welcome outcome for the Trump administration.
It is expected that a larger Chinese policy support package will rise somewhat with a Trump victory, though it may not necessarily be announced immediately. According to a recent Reuters report, the expected package size is RMB 10tn over 3-5 years, with RMB 6tn spent on local government debt issues and RMB 4tn on supporting the property market. Foreign holdings of Chinese domestic assets fell around 15 percent from the peak in 2021 to the start of 2024 before rebounding 12.6 percent. Chinese assets have been underweight by many global investors, and a Trump victory could be a catalyst for further pullback and continuation of delinking, de-risking, and overcapacity trends. US policymakers would further discourage or ban US investment into Chinese firms, creating a difficult scenario for investors and businesses.
It seems that China’s domestic catalysts, including the upcoming scale and efficacy of stimulus policies, should play a bigger role relative to the US election outcome. Net foreign direct investment into China has cratered to historical lows this year, and new US investment into China has been muted for the last several years already. A Trump presidency sparking further US-China tension certainly will not help matters on this front. It fears that disproportionate tariffs could accelerate China’s outward direct investment. In summary, Trump’s electoral victory has immediately shocked money and stock exchanges of Asia which is not a healthy sign. The chances of the start of Trade War 2 between the US and China would be fatal for quick economic recovery, price stabilization, control of inflationary trends, economic globalization and international cooperation.
Moreover, mutual negotiations over climate change cooperation, EVs, artificial intelligence tariffs and industrial cooperation would be further dragged out, producing destructive outcomes for the region and beyond. The element of geopolitics would be further dominated especially in Asia Pacific, South China Sea, Taiwan, Hong Kong and concerns of so-called human rights would again surface. The increasing bilateral cooperation with Japan, South Korea, Thailand, Indonesia, Australia and Philippines would be further strengthened and trilateral expansion on AUKUS, and QUAD would also be anti-China. Unfortunately, the first trade war in 2017, the US trade deficits with China have narrowed but widened versus other Asian economies. This increases the odds that China may not be the lone target of Trump’s next possible trade war. It is feared that the US tariffs on other Asian economies are expected to be lower than what is ultimately levied on China.
—The writer is President, Pak-China Corridor of Knowledge, Executive Director, CSAIS, regional expert: China, CPEC & BRI.
