Opinion | Can Trump's imposition of additional tariffs on China achieve its goals?

By Wang Yanhang

On Monday local time, US President-elect Donald Trump announced on his social media platform his plan to impose an additional 10% tariff on all major Chinese products entering the United States. The stated reason for this move is to combat the influx of drugs, especially fentanyl, into the US. However, the implications behind this economic policy extend not only to China-US trade relations but also could potentially have various impacts on the global economy. The ultimate effects remain to be seen.

Trump deliberately linked the imposition of tariffs with the issue of drug trafficking, claiming that China had promised to impose severe penalties on individuals involved in drug trading but had not achieved the desired results. Through tariff policies, he hopes to use economic means to urge the Chinese government to strengthen control. While this logic may garner some degree of political support domestically in the US, its effectiveness and legitimacy on the international stage are questionable. Tariff measures, as tools of international trade policy, are typically used to protect domestic industries or weaken foreign competitiveness, rather than to shift responsibility or address transnational crime or drug issues. Linking such tariff measures with public safety issues may provoke resentment or even retaliation from other countries.

Currently, the US is one of the largest markets for Chinese exports. An additional 10% tariff will further raise the prices of Chinese goods in the US, damaging their competitiveness. Affected industries may include electronics, machinery, clothing, and household appliances, which are dominant sectors in China's exports to the US.

Based on past experiences of the China-US trade war, tariff increases often lead to reduced orders, and shrinking profits, with a particularly significant impact on small and medium-sized export enterprises. While Chinese businesses may alleviate pressure by passing on some costs or exploring new markets, it is difficult to fully offset the impact of tariffs in the short term.

In recent years, influenced by the pandemic, the China-US trade war, and global geopolitical tensions, some multinational corporations have begun adjusting their supply chain layouts, shifting manufacturing processes from China to countries in Southeast Asia like Vietnam and India. The imposition of additional tariffs could further accelerate this trend, leading to some foreign enterprises exiting the Chinese market, subsequently affecting domestic manufacturing employment and investment levels.

'Forcing' Industries to Accelerate Transformation and Upgrading

According to a recent report by UBS earlier this year, if the US imposes a 60% tariff on Chinese imports, it could reduce China's projected economic growth by 2.5 percentage points, roughly half of the initial data.

Tariff policies often have a direct impact on exchange rates. Faced with intensified export pressures, the renminbi may undergo a trend of depreciation to maintain price competitiveness. However, excessive depreciation of the renminbi could trigger capital outflows and financial market instability, posing additional risks to the overall operation of the Chinese economy.

Although imposing additional tariffs may exert direct pressure on Chinese exports in the short term, it may also force domestic industries to accelerate transformation and upgrading. Faced with high tariff barriers, companies may pay more attention to improving product quality and technological innovation, reducing reliance on low-cost competitiveness. This may potentially optimize the structure of the Chinese economy in the long term.

The trade war between China and the US launched by the Trump administration from 2018 to 2020 has had profound implications. The imposition of tariffs has plunged the economic and trade relations between the two countries into a long-term state of tension, and the additional 10% tariff may further exacerbate this situation.

From the perspective of American consumers, tariffs will push up commodity prices, increasing the cost of living. From the viewpoint of American businesses, manufacturers relying on the Chinese supply chain may face higher production costs. On the Chinese side, reciprocal measures may be taken, such as restricting exports of key raw materials or raising regulatory thresholds for US companies operating in China.

Furthermore, this policy may weaken the willingness of both sides to cooperate in other areas, such as climate change and global public health. If tensions between the two countries continue to escalate, it will bring significant risks to the global trade landscape and economic stability.

China and the US are the world's two largest economies, and their trade frictions will not only affect bilateral economies but also have spillover effects on the global economy.

Trade tensions between China and the US may prompt multinational corporations to reconfigure global supply chains, especially in high-tech and electronics manufacturing sectors. In the short term, such adjustments may increase production costs, lead to efficiency declines, and pose a threat to the stability of the global industry chain.

The International Monetary Fund (IMF) has previously warned that the China-US trade dispute poses a significant threat to global economic growth. If trade frictions intensify again, it will have a negative impact on global economic recovery, especially against the backdrop of multiple challenges such as inflation and geopolitical conflicts in the global economy.

Tariff policies may prompt some production processes to shift from China to emerging market countries. This provides an opportunity for Southeast Asian countries and other developing countries to attract investment. However, whether these countries have the infrastructure and policy environment to accommodate large-scale industrial transfers remains to be seen.

From historical experience, imposing tariffs is often a double-edged sword. Although Trump aims to pressure China through tariffs to take action, this strategy may not necessarily yield the desired results. China may exert pressure on the US through multilateral channels while strengthening trade cooperation with other countries to reduce dependence on the US.

The 'double-edged sword' of tariffs harms the US itself

Looking from a long-term perspective, China may further advance its strategy of economic internal circulation to reduce its reliance on external demand. At the same time, accelerating domestic industrial upgrading, strengthening relations with countries in the Southern Hemisphere, Europe, and ASEAN, and expanding the 'Belt and Road' market will become important measures to address external trade barriers.

President Trump's plan to impose an additional 10% tariff once again adds uncertainty to the Sino-US relationship. For China, this is both a challenge and an opportunity to drive domestic economic transformation. How to achieve high-quality development while responding to external pressures will become a core issue in China's future economic policies.

Although the additional tariffs in the short term may have a certain negative impact on China's exports and economic growth, as long as they can respond prudently and accelerate adjustments, China has the ability to turn the crisis into an opportunity for development. As past decades have shown, China's economic resilience and adaptability have always been reliable.

(SOurce: Ta Kung Pao)

The author is a senior economist.

Related News:

Opinion | China needs to return to its strategy of promoting and defending free-trade

Opinion | From honorable judge to professional politician: Jonathan Sumption keeps falling