Trump Eyes a Bigger, Better Trade Deal with China

As the world watches the geopolitical chess game unfold between the United States and China, one thing is clear: President Donald Trump is not backing down from his trade war. In fact, he's eyeing a bigger, better trade deal with China, one that could reshape the global economy. But what does this mean for investors, and what can we expect from this new deal?



First, let's address the elephant in the room: tariffs. Trump has repeatedly pledged to impose high tariffs on imports from China, including revoking China's permanent normal trade relations status, resulting in a 32 percent tariff. If he really imposes these tariffs, the trade tension between the world's two largest economies will escalate drastically, causing serious damage to bilateral trade and the global multilateral trading system.

However, there's a catch. Historical data shows that tariffs have not been effective in reducing the US trade deficit. During the second term of the Obama administration, when no massive tariffs were imposed, the US trade deficit only grew by $4.8 billion. During Trump's first term, when he imposed tariffs on over $400 billion worth of Chinese goods, the US trade deficit soared by $166.2 billion. During the following Biden administration, when Trump tariffs were maintained, the US trade deficit soared again by another $160.6 billion during 2021-23.

So, what's the real purpose behind Trump's tariff threats? Some experts argue that his real goal is to cut down tremendously on imports from China, to quench China's economic growth on the one hand, and to protect home manufacturers on the other. But the past seven years of practices have proved just the opposite. Two cycles of Chinese exports to the US show that tariff effect is only temporary.

The massive import tariffs on over $370 billion of Chinese imports, imposed during July 2018 to December 2019, did cause a straight fall in China's exports to the US in 2019 and H1 2020. However, Chinese exports to the US started picking up during Q2 2020, ending the year at $451.81 billion, 7.9 percent over 2019, only 5.6 percent lower than the 2018 high. The recovery continued in 2021 and ended the year at $576.11 billion, 20.4 percent higher than 2018, or the pre-tariff high.

Chinese exports to the US resumed sharp fall again in September 2022, not because of tariffs, as there were no new tariffs imposed by the Biden administration, but by the high-tech ban or restriction policy, known as "small yard, high fence." Even so, Chinese exports to the US fell 13.1 percent again in 2023, to $500.29 billion. Even so, it started recovery again since the start of 2024. The first 11 months of 2024 saw Chinese exports to the US at $475.67 billion, 3.9 percent up a year ago, with exports in November at $47.31 billion, annualized at $567.71 billion, 97.6 percent of the 2022 high.



Now, what can investors expect from this new trade deal? If Trump's administration really imposes the tariff after he returns to the White House in January 2025, the trade tension between the world's two largest economies will escalate drastically, causing serious damage to bilateral trade and world's multilateral trading system. However, the potential benefits for China could be significant, as the country has shown resilience in the face of US trade actions.

In conclusion, Trump's new trade deal with China is likely to have significant implications for both countries' economies, as well as global supply chains and trade dynamics. However, the extent of these impacts will depend on the specific terms of the deal and how they are implemented. Investors should stay tuned for more developments and be prepared to adjust their portfolios accordingly.