Trump Vs China Is About To Rock Asia's World

This 1985 problem was obvious during the Trump 1.0
era from 2017 to 2021. Along with taxes on Chinese goods, Trump's signature“reform” was a massive US$1.7 trillion tax cut that was more the stuff of
the go-go Ronald Reagan years than a strategy to reanimate American competitiveness for the future.

It did little to incentivize chieftains to compete with China the organic way - by getting
the US economy
in better shape domestically.

The last batch of Trump tariffs didn't increase US productivity, unleash new waves of entrepreneurship or build new economic muscle at home. Nor will the onslaught of Trump 2.0 taxes coming Asia's way.

The 60% tax could easily rise to 100% or more. So might the 20% blanket across-the-board tax Trump is mulling for all goods from everywhere.

The 100% levies that Trump telegraphed for cars made in Mexico could soon be widened to vehicles from Germany, Japan, South Korea, Sweden and elsewhere.

Biden already beat Trump to China, of course. In May, Biden's White House slapped a 100% tariff on Chinese electric vehicles and solar panels amid concerns cheap goods are“flooding” the US market.

The EV tax is four times the current 25% rate, aimed at offsetting what Lael Brainard, Biden's national economic adviser, calls“China's unfair practices and subsidies and level the playing field for US automakers and auto workers.”

Now that Tesla founder Elon Musk has Trump's ear, even bigger EV taxes could be on the way. Twelve months ago, Musk enjoyed folk-hero status in China after building his first overseas“Gigafactory” in Shanghai.

Now, Musk warns that China will“demolish” global car rivals unless Washington erects higher trade barriers.

Clearly, Xi's government isn't looking forward to the Trump 2.0 era.“Let me reiterate that there is no winner in a trade war, nor will the world benefit from it,” as Chinese Foreign Ministry spokesperson Mao Ning puts it.

Neither is the rest of Asia. The entire region could find itself in the firing line as Trump obsesses over bilateral trade deficits from country to country.

“Burgeoning bilateral deficits could eventually prompt US tariffs on other Asian economies,” says Andrew Tilton, chief Asia-Pacific economist at Goldman Sachs.“Korea, Taiwan and especially Vietnam have seen large trade gains versus the US.”

At the same time, Tilton notes, Korea and Taiwan's positions are in“privileged positions” in the semiconductor supply chain at a moment when Trump is keen to tilt the playing field toward America.

Trump will surely be reminded, meanwhile, that Vietnam has been a key winner from US efforts to pull jobs away from China, he says. Japan and India also run trade surpluses with the US.

Last year, Korea's trade surplus with the US hit a record US$44.4 billion, its largest surplus with any country. Car exports account for roughly 30% of Korean shipments to the US.

Exports from Taiwan to the US reached a record $24.6 billion in the first quarter of 2024, a 57.9% year-on-year jump. The lion's share of those gains came in the information technology and audio-visual product sectors.

Hanoi's US trade surplus stood at $90 billion in the first nine months of this year.

As 2025 begins, Tilton reckons there will be efforts by Asian trading partners to take steps to“deflect attention” by masking these imbalances. That's easier said than done at a moment when the dollar is strong and rising.

Analysts at Barclays Bank argue in a recent report that Asian leaders will be hard-pressed to avoid Trump 2.0's draconian approach.“Trade policy is where Mr Trump is likely to be most consequential for emerging Asia in his second term as US president,” they write.

Staunch US ally Japan will be in harm's way, too. And at a moment when the Bank of Japan has been trying to hike interest rates to support the falling yen. The US-China clash to come is the last thing Japanese Prime Minister Shigeru Ishiba's embattled government needs.

Trump, remember, has said“tariff” is the“most beautiful word” in the dictionary.

It makes for the“perfect storm,” says Wendy Cutler, who
spent three decades as a diplomat and negotiator in the Office of the US Trade Representative (USTR).“China's global trade surplus is on track to reach $1 trillion this year as the 'tariff man' takes office. Buckle your seatbelts.”

The fallout from the damage tariffs do to China's 2025 could be a game-changer all their own.

“Trade war 2.0 could end China's ongoing growth model, in which exports and manufacturing have been the main growth driver,” says economist Larry Hu at Macquarie Group, who thinks 60% tariffs could lower mainland exports by 8% in just one year.“Under the next growth model, domestic demand, especially consumption, could become the main driver again as it was during the 2010s.”

Of course, no one really knows what to expect.“In reality,” Hu says,“the tariff hike may be smaller and narrower than what Trump has floated. As a result, Beijing may not react pre-emptively but may decide the size of the stimulus later in response to the actual tariffs.”

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Or Trump's levies could be even higher. Next month's Politburo meeting
and central economic work
conference
will give Team Xi an opportunity to weigh risks and imponderables for the year ahead. And to mull ways that China might retaliate.

One possible silver lining is that Trump 2.0 will refocus Team Xi on the need to rebalance domestic growth engines and accelerate efforts to increase its economic self-reliance.

“China will seize the opportunity to position itself as the defender of globalization and multilateralism as Trump alienates the world with protectionism, isolationism and bombast,” Paul Triolo, a partner at advisory firm DGA
Group.“China failed to take advantage of the global discontent with America during Trump's first term. It will not make the same mistake again.”

Then there are the ways China might hit back. Options include dumping large blocks of China's $770 billion of US Treasury securities , clamping down on American access to minerals, reducing agricultural imports, punishing a range of firms from Apple and Tesla or devaluing the yuan.

“A far more effective approach for Beijing would consist of alliance formation in Eurasia along with commercial diplomacy to persuade American allies and partners that US policy is reckless and harmful to peace and prosperity,” says Matt Gertken, chief strategist at BCA Research.

“Xi is in fact doing both: strengthening ties with Vladimir Putin, even condoning a new Russo-North Korean mutual security pact, while courting Germany, Japan, Australia, and other states eager for Chinese investment,” Gertken said.

Increasing the role of Global South and the BRICS nations – Brazil, Russia , India, China and South Africa – also could blunt the damage from Trump's trade policies.

In August, the BRICS added to their ranks Saudi Arabia, Iran, Ethiopia, Egypt, Argentina and the United Arab Emirates. BRICS expansion is a means of reshuffling a world order Beijing sees as outdated.

Yet nothing seems more outdated than Trump trying to recreate a 1980s-like global trading system that's no longer workable. And at the expense of Asia's 2025 growth prospects.

Follow William Pesek on X at @WilliamPesek

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