Editor's note: The past week was a rare "super week" for global markets. First, the dust settled on the U.S. elections, with Trump returning to the White House, followed by the release of the Fed's November decision on interest rates. In mainland China, the 12th meeting of the Standing Committee of the 14th National People's Congress, was held from the 4th to the 8th and is also influencing the economic outlook. So, what impact will this "super week" have on the economies of China, the U.S., and even the world?
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. The past week was a rare "super week" for global markets. First, the dust settled on the U.S. elections, with Trump returning to the White House, followed by the release of the Fed's November decision on interest rates. In mainland China, the 12th meeting of the Standing Committee of the 14th National People's Congress, was held from the 4th to the 8th and is also influencing the economic outlook. So, what impact will this "super week" have on the economies of China, the U.S., and even the world? To discuss this topic, we have invited Jia Kang, renowned economist and the founding president of the New Supply-side Economics Research Institute, Feng Jianlin, FOST Chief Economist, and Hu Dinghe, financial expert and visiting scholar at Harvard University, to provide their insights and analysis. Welcome, everyone.
【Anchor】First, regarding Trump's re-election as President of the United States, the attitudes of American voters can be described as "polarized." Let's start by looking at the report sent back by the DDN special correspondent.
【Anchor】In contrast, industry experts and organizations characterize Trump's victory as a "new variable" for the U.S. economy. So, in which specific aspects does Mr. Feng believe this change is reflected, and what does his election imply for the outlook of the U.S. economy? Let's hear Mr. Feng'sview first.
The impact of the U.S. elections on the economy is relatively complex. There are both positive and negative factors concerning economic growth. On the positive side, for example, tax cuts will certainly increase household income and boost consumption. Trump advocates for new housing construction in urban and suburban areas, which will benefit the real estate industry. Additionally, tax cuts and expedited natural gas pipeline approvals will support the energy industry. Furthermore, his support for student loan forgiveness will encourage consumer spending. These are all positive factors.
On the downside, his policies to remove illegal immigrants may lead to a decrease in population, which could negatively impact economic growth. Overall, it seems that the positive factors may outweigh the negatives. Regarding prices, there are also two sides to consider. Increasing tariffs on imported products will likely drive up inflation while boosting oil and gas production could lower energy prices. As various factors will ultimately offset each other, in the medium to long term, I believe that tariff increases may have a more noticeable impact on inflation.
【Anchor】How does Mr. Hu view the impact of Trump's election on the economic prospects of the United States itself?
Trump emphasizes the freedom and efficiency of the market, restricts the size and regulation of government, strengthens fair trade, supports tax cuts, opposes illegal immigration, and reduces social security, etc. The core ideas are massive tax cuts and low-interest rate policies, aiming to defeat inflation and lower the prices of all American goods and services.
【Anchor】We also see that Trump has significant support within the U.S. tech industry. In addition to Musk who "popped the champagne" in advance, after his victory, CEOs from many major tech companies like Meta, Apple, and Google congratulated him and expressed their desire for collaboration. How do you view the impact of Trump's victory on key technology fields and innovation industries, Mr.Hu?
For the U.S., Trump's election means increased budget allocations to support business technology innovation and market-driven solutions. Musk's all-in bet this time seems to have paid off, with a direct investment of US$100 million and a significant amount of time and effort spent supporting Trump. The success of his bet could lead to a series of innovative breakthroughs in industries dominated by Musk, such as autonomous driving, genetic modification, brain-computer interfaces, controlled nuclear fusion, electronic energy storage networks, digital currencies, robotics, and AR glasses. These innovations, which may break through the old frameworks of human morality and law, will be supported and disrupt the status quo, accelerating the upgrade and innovation of technology products. Therefore, this could be beneficial for U.S. technology and innovation, as the level of support is greater, both legally and financially speaking.
However, for China, Trump's isolationist policies may reduce U.S. investment and technological support, significantly impacting our high-tech innovation. We must recognize this as a significant challenge.
【Anchor】How does Mr. Feng view the impact of Trump's election on the global supply chain?
Regarding the impact of Trump's re-election on global supply chains, it will certainly be negative. His return to the White House symbolizes an ongoing trend of nationalism and isolationism that began in 2016, which will be reflected in his trade policies. Unlike Biden, who imposed tariffs on key industries, using the so-called "small yard, high fence" approach. Trump is likely to continue this approach, but at the same time, he will impose taxes on all products, not just products from China, but probably on everything exported to the U.S. worldwide. This clearly poses a considerable negative factor for global supply chains.
【Anchor】As for the current Vice President and Democratic presidential candidate Kamala Harris, she stated in her concession speech that she would assist Trump and his team in a peaceful transition of power. With about two and a half months until Trump's inauguration on January 20, what uncertainties do you foresee during this period, Mr. Feng?
As the incoming president, Trump cannot directly impact current policies, but he will have influence. We should watch how he selects his cabinet. He promised to address the Russia-Ukraine conflict before taking office, and I expect some actions there. Regarding tariffs on imported products, he will likely consider how to approach this until his new administration is established. The issue of tax cuts will also depend on Congress. He must wait for the new Congress to review this matter. There are indeed many uncertainties involved. In 2016, after his election in November, he was already engaging with various parties, including discussions with the Chinese government. Before his inauguration on January 20, 2017, there were discussions about key issues, but there were no clear answers. We will see how it all unfolds this time, and it is possible that we will also engage in discussions with him soon. Other countries may face similar situations and need to communicate with Trump's team as well. There are indeed many uncertainties.
【Anchor】Right. Mr. Hu, what is your view?
There are just over two months until Trump officially takes office. The first thing that needs special attention is, of course, the results of the House of Representatives elections. Although voting ended on November 5, the results are still pending and are expected to be announced in the coming days. When Trump was elected last time, he controlled the Senate but did not have control over the House, which was held by the Democrats, leading to many limitations imposed on him by Pelosi. If Trump can gain control of both chambers this time, it will make the execution of his policies much smoother.
Secondly, regarding the Russia-Ukraine war, the Biden administration may expedite the previously decided aid to Ukraine to ensure support continues without interruption after Trump takes office.
【Anchor】Additionally, Trump's victory has severely disrupted expectations for global interest rate cuts. Last Thursday, the Fed announced a 25 bp rate cut, but many Wall Street investment banks have already lowered their bets on further rate cuts by the Fed next year. What is Mr. Feng's view on this? How will Trump's presidency affect the future path of interest rate cuts in the U.S.?
After the new president takes office, there will be some influence on the path of Fed interest rate cuts, but this influence does not mean direct intervention; the Fed will maintain its independence. However, the new president's policies will affect economic growth and price trends, which in turn will influence the Fed's decisions on rate cuts. Currently, I feel that the U.S. economy and prices will maintain relative resilience, leading to a slower pace of interest rate cuts. Whether it's Trump or Harris who takes office, this outcome is equally likely. If we look at Harris's policies, she also supports tax cuts, and many of her policies would favor stable economic development, which would lend some support to prices. Overall, the arrival of a new U.S. president may result in a slightly slower pace of interest rate cuts than currently expected.
【Anchor】Yes. What is your view, Mr. Hu?
It is anticipated that rate cuts could continue into 2025, with some even suggesting that the path of rate cuts might last for two full years—this year, next year, and even the year after, possibly extending into the fourth year. However, Trump differs from other U.S. presidents in that he may intervene more aggressively in the Fed's monetary policies. Although He verbally expresses a desire to lower interest rates, some of his policies could potentially push inflation higher. Once inflation reaches a certain level, rate cuts may need to stop, so it is also possible that rate cuts could cease in the second half of next year.
【Anchor】Now, what do you think about the impact of Trump's victory on China?
For our country, although Trump claims to impose tariffs of 60% or even 100%, he is actually quite pragmatic and often changes his rhetoric. From a practical standpoint, a 60% tariff may not be feasible; it is more likely that tariffs could increase by 20% or 30%. Therefore, we should have more monetary policies to deal with it. During the first phase of the U.S.-China trade war in 2018, the People's Bank of China lowered reserve requirements four times and injected liquidity into the Chinese economy. After Trump takes office, we should promptly adjust our overly concentrated supply chain structures to mitigate external shocks from the U.S., especially in the high-tech industry.
【Anchor】Speaking of China, during the same time as the U.S. elections, the 12th session of the 14th National People's Congress Standing Committee was held. This meeting was postponed from the usual late October to early November, close to the conclusion of the U.S. presidential election, which was interpreted by foreign media as "the policy scale will be adjusted based on the U.S. election results". What are your thoughts on this? What does this change in timing suggest, Mr. Jia?
It can only be seen as an external comment. The official stance has not been stated. From a research perspective, it doesn't matter much if people have this impression. It is possible that they deliberately chose to announce specific arrangements after the U.S. presidential election results. However, I believe the scale of these measures is not directly related to who becomes president. Whether or not this factor was considered, it is unlikely the officials will respond to such comments. Overall, regardless of the connection, it is not a substantial issue. It reflects that we have already provided qualitative measures and are now detailing aspects and timelines.
【Anchor】Whatdo you think, Mr. Feng?
The timing of the U.S. elections and our National People's Congress meeting is actually a coincidence. I don't believe we are waiting for the election results to decide our plans; it shouldn't be the case. The increase in debt limits and the push for debt resolution were decided at the Political Bureau meeting on September 26. Regardless of the U.S. election outcome, we need to move forward with this work. Why? Because local governments face significant debt burdens and need to alleviate the pressure of hidden debts, so we must promote this round of policies. The intensity of debt resolution will also depend on the scale and situation of the local government's hidden debts, which is not greatly influenced by who is president in the U.S.
How should China respond to the results of the U.S. election, such as Trump's presidency? This is a question that will need to be addressed in the upcoming Central Economic Work Conference in December, which is not closely related to this National People's Congress meeting.
【Anchor】Returning to the specifics of this NPC meeting, How do you view the strength of these policy measures, and what considerations underlie the phased and segmented arrangements?
The strength of this measure is evident in its comprehensive one-time approval, with the 6 trillion increases in local special bonds implemented over three years to address debt with debt. Additionally, it clearly states that over the next five years, 800 billion yuan will be specifically allocated from the existing local debt scale, contributing to the 4 trillion yuan in debt replacement. So, the 10 trillion yuan you mentioned is composed this way. This comprehensive plan can effectively guide and manage expectations. The public can clearly see the government's strong determination and the overall situation and progress over the entire five-year period.
It emphasizes that 8.4 trillion yuan will be available in the first three years. Thus, it is very clear that Minister Lan's earlier remarks about unprecedented strength and timeliness reflect a comprehensive approach or a large basket of debt-for-debt combinations.
【Anchor】Additionally, in the remaining two months of this year, Mr. Feng, where do you see the room for action for China's economic policies to take effect?
There are several aspects to consider: First, fiscal spending in the fourth quarter is expected to accelerate year-on-year. The annual fiscal spending budget target is a 4% increase. In the first three quarters, the growth was 2%, so to meet the annual budget, fourth-quarter fiscal spending needs to grow by 9.2%. This will provide some support for the economy.
Second, the issuance and allocation of local government bonds need to be promoted, which will help restore the funding chain for local governments. In line with bond issuance, the central bank may also lower reserve requirements.
Third, we need to push for the implementation of real estate policies, which include expanding the expansion of whitelists, the purchase and storage of existing commercial housing, and Monetary compensation for the renovation of urban villages. These efforts are part of the industrial policies for real estate. Additionally, we can consider supporting the development of the education, training industry, and the platform of the economy under regulated conditions, while accelerating the growth of various emerging and future industries.
Lastly, we can continue to promote the effective implementation of 'Two New' Programs. Speaking of which, there are still many policies within this year that we believe will have a positive impact on the economy.
【Anchor】What is your view, Director Jia?
In these last two months of the year, although there is not much time left, we have already seen clear signs of improvement in October. Leading indicators reflect positive trends, and I estimate that this positive momentum will continue in the remaining two months. Therefore, it is highly likely that the target of GDP around 5% will be achievable. From January to September, the growth rate was already at 4.8%, and I estimate that the fourth quarter will not be lower than 4.8%. So, anything above 4.8% can be considered around 5%. If the performance is even better, it is very likely to reach 5%. This 5% growth target is significant in terms of continuity, ensuring that we maintain a trajectory of speed. For the next two years, I believe we should aim to keep around 5%, and it would be even better to strive for slightly higher than 5%.
【Anchor】OK, thank you. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
Anchor: Laura Cheung | Edited: Kelly Yang, Laura Cheung | Translate: Kato Ip | Proofread: Chris Liu
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