Trump 2.0 could go ‘nuclear’ on trade with China, economists say

Former President Donald Trump is likely to take the trade war and economic decoupling policy to a new level if he is elected for a second term in the White House, experts told CNBC.

While Joe Biden is also establishing a strategic competition with China on the economic policy front, economists and trade experts generally expect Trump to further cut and damage trade relations between the world’s two largest economies.

“A Trump victory is very likely to increase trade and economic hostility between the US and China, ramping up trade and financial decoupling between the two countries,” said Eswar Prasad, professor of economics at Cornell University.

Trump is expected to face Vice President Kamala Harris after Biden bows out and endorses her. According to Prasad and other experts, Harris’ approach to China may be similar to Biden’s.

While Trump and Biden have both taken a protectionist stance, their strategies and tactics differ, said Prasad, who previously headed the International Monetary Fund’s China and financial studies division.

“Trump relies on tariffs to prevent imports from China. Biden – while maintaining these tariffs and even increasing tariffs on certain imports – has focused more on limiting China’s access to technology transfers and computer chips,” he said.

Trump’s biggest diversion from Biden-era trade policies will be tariffs imposed on China.

The self-proclaimed “tariff man” waged a trade war with Beijing during his first term. He placed multiple duties on $250 billion of Chinese imports, ignoring warnings that the levies would raise prices and hurt consumers.

After defeating Trump in 2020, Biden retained his predecessor’s tariffs and even added his own, announcing tough new duties on $18 billion of Chinese imports, including electric vehicles, solar cells, lithium batteries, steel and aluminum.

Experts told CNBC that they expect Harris to continue Biden’s tariff policy. Trump, on the other hand, has proposed an increase in tariffs on Chinese imports by at least 60%.

“I certainly don’t know if Trump is willing to follow these extreme measures, but I am confident that he will increase tariffs to some degree during his second term,” said Stephen Weymouth, a professor of international political economy at Georgetown University.

Economist Stephen Roach said Trump raising tariffs in his second term would be the “functional equivalent of the nuclear option” in international economic conflict.

William Reinsch, Scholl’s chair in international business at the Center for Strategic and International Studies, said the tariffs risk another trade war that will end most of the exchange of goods between the two countries at “enormous economic costs.”

Although Trump’s goal is not full decoupling but rather forcing Beijing to negotiate a better trade deal, Reinsch said there is no reason to believe that will work.

The Trump administration reached a “phase one trade deal” with China in 2019, but some terms were honored and the next phase never materialized.

Some commentators say Trump’s selection of JD Vance as his running mate is a further signal that Republicans are serious about their tariff plan. The senator from Ohio has been a vocal supporter of tariffs on China, identifying the country as the biggest threat facing the US.

“If I were China’s policymaker, this choice would shake me,” said Arthur Dong, a professor of strategy and economics at Georgetown.

Perhaps Biden’s biggest step yet, the administration signed the CHIPS and Science Act in August 2022, setting aside nearly $53 billion to invest in domestic semiconductor manufacturing and research to improve US competitiveness with China.

Chris Miller, author of “Chip War,” noted export controls and the CHIPS Act passed with bipartisan support in Washington, and as such, the policy will remain a priority no matter what happens in November.

“I expect that the U.S. will limit one or two restrictions, regardless of who wins the election,” Miller said.

A second term for Trump will also push U.S. diplomacy and dialogue with Beijing beyond trade issues, said Rorry Daniels, managing director of the Asia Public Policy Institute.

He said the channels for the two countries to discuss policy issues have declined significantly under the Trump administration, while the Biden administration has stepped up efforts at diplomatic engagement.

The current administration is also calling for greater coordination with “equal partners” such as lobbying Japan and the Netherlands to cooperate on semiconductor bans.

“Both help to reduce trade policy actions, but in many ways they also make them more effective,” said Nick Marro, lead global trade analyst with the Economist Intelligence Unit, adding that he expects future Democratic administrations to retain this multilateral approach. .

On the other hand, he said that Trump chose a more “go-it-alone” approach, in order to implement faster US measures on China.

While the Biden-Harris administration’s “more measured and cautious” approach to China trade and diplomacy has done more to stabilize the relationship, Marro said he doubts Beijing is excited about either candidate.

“There is this feeling that, regardless of which party is in the White House, the US-China relationship will remain on a crash course for the rest of this decade.”

– CNBC’s Zenith People contributed to this report