BEIJING – An expanded US-China trade war during US President-elect Donald Trump’s second term could slash the Asian nation’s economic growth by two percentage points and prompt Beijing to stimulate domestic demand, according to Macquarie Group.
Trump’s campaign vow to raise tariffs on Chinese goods to 60 per cent could cause the nation’s exports to decline by about 8 per cent over the following year, Macquarie economists projected in a note on Nov 6.
Taking into account the hit to companies’ capital expenditures and business confidence, the impact on gross domestic product would be significant, they said.
In that case, policymakers would have to step up policy support for the economy, and 60 per cent tariffs could require three trillion yuan (S$555.08 billion) in stimulus to offset, the economists said.
Another three trillion yuan would be needed to turn around weak domestic demand, according to their estimates.
“Trade war 2.0 could end China’s ongoing growth model, in which exports and manufacturing have been the main growth driver,” economists Larry Hu and Yuxiao Zhang wrote. “Under the next growth model, domestic demand, especially consumption, could become the main driver again as it was during the 2010s.”
The US economy would suffer as well.
Bloomberg Economics projects that the maximal version of Trump’s campaign plan, with the China tariffs coming on top of 20 per cent across-the-board tariffs, would lower US GDP by 0.8 per cent and add 4.3 per cent to inflation by 2028 if China alone retaliates.
If the rest of the world also retaliates, the blow to growth would be greater, lowering US GDP by 1.3 per cent, but would add just 0.5 per cent to inflation because of the weakened US economy.
In the previous US-China trade war during the first Trump administration, the US
