Victory for Donald Trump in the U. S. presidential election could be a game changer for China’s economy.
The candidate’s promise to slap punitive tariffs on Chinese imports would be highly contractionary, deflationary and wipe hundreds of billions off the value of the world’s second-biggest economy, according to new research by Kevin Lai, the Hong Kong-based chief economist for Asia (excluding Japan) at Daiwa Capital Markets.
Lai estimates that Trump’s suggestion for a 45 percent tariff on Chinese goods to narrow the trade deficit with America would spark an 87 percent decline in China’s exports to the U. S. – a decline of $420 billion. That would, over time and factoring in multiplier effects, mean a 4.82 percent blow to China’s gross domestic product, or about a half trillion dollars’ worth. It doesn’t even take into account an estimated $426 billion in foreign direct investment repatriation if companies started to withdraw.
‘A loss of GDP or a slowdown in GDP growth of this scale would be staggering,’ Lai wrote in a note entitled ‘What would a Trump presidency mean for China.’ ‘Eventually, Trump and his administration may actually compromise with a watered-down version of tariffs.’
This post was published at David Stockmans Contra Corner By Enda Curran from Benchmark, Bloomberg Business ‘ September 14, 2016.