Pressure points on China from the Trump Administration
Trump 1.0 and Trump 2.0 have or may impose a variety of tariffs. We have some sense of the macroeconomic impact on China. But what about the domestic political pressure points? We know that China has deliberately targeted its tariffs heavily on red states to weaken Trump’s base. Is there likely to be similar political pressure on Xi Jinping and the Politburo?
A top-down macroeconomic approach provides some general analysis of the impact of a variety of Trump Tariffs. However, we have seen China absorb blows to the economy without altering its fundamental economic focus on investment in technology, credit to state firms, and little support for the consumer. Apart from tariffs, these blows included the crackdown on the technology sector in 2020 and the attack on the property market that same year. Both policies had a significant impact on economic growth and employment. Under a new set of tariffs, would Xi maintain his current policies?
To examine this question, we look at several key economic sectors whose impact from tariffs would increase political pressure on the leadership in Beijing. One of them is the online marketplace (or gig economy), which employs vast numbers of citizens and would be hurt by export tariffs and the possible reduction of tax-free exports under the de minimis regulation. A second is the state sector, which is a major producer of metals such as steel and aluminum that would be impacted by tariffs. The data is not comprehensive (China does not release this kind of sensitive analysis) but what we have indicates that the politics of tariffs may be more damaging than the top-down analysis would suggest.
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