A week before the billionaire’s inauguration as US president, Chinese authorities expressed their concern that Trump would follow through on pledges to impose high tariffs on imports from China and to brand the country a currency manipulator. The president-elect has long maintained that China has been devaluing its currency in order to make its exports more competitive on overseas markets.
Beijing’s worries come against the backdrop of a slowdown in trade with figures on Friday showing exports fell for the second year running in 2016, dropping by 7.7% – the biggest fall since 2009 – with imports falling by 5.5%.
The weaker than expected performance added to concerns that global demand is slowing in a climate of heightened political uncertainty and social tensions.
The World Bank warned this week that a tentative pickup in the global economy is at risk from the uncertainty unleashed by Brexit and the arrival of Trump in the White House. There was also a note of caution on growth prospects from the World Economic Forum, which said before its annual meeting in Davos next week that rising income inequality posed a risk to the global economy in 2017.
Policymakers and investors are waiting to see which of Trump’s campaign trail pledges he will seek to push through after being sworn in on 20 January. He fought Democratic candidate Hillary Clinton on an anti-globalisation platform with a pledge to bring jobs back to America that he claimed had been lost to China and other countries.
China’s customs agency expressed its worries on Friday. “The trend of anti-globalisation is becoming increasingly evident, and China is the biggest victim of this trend,” customs spokesman Huang Songping told reporters, according to Reuters news agency.
“We will pay close attention to foreign trade policy after Trump is inaugurated president.”
Experts said part of China’s trade slowdown in 2016 was down to a deliberate push to rebalance away from an exports-driven economy.
“Some of the decline is expected and intended,” said Kamel Mellahi, professor of strategic management at Warwick Business School.
“The focus on the domestic market, recent anti-pollution measures and supply-side policies, combined with the sluggish international demand for Chinese goods, are all having a negative impact on export.”
Julian Evans-Pritchard, China economist at the consultancy Capital Economics, said he saw little prospect of China’s trade position improving in the near future, partly thanks to tepid global growth.
“It’s hard to see conditions becoming much more favourable to Chinese trade than they already are. Further upside to economic activity, both in China and abroad, is probably now limited given declines in trend growth,” he said.
“The risks to trade lie to the downside – the likelihood of a damaging trade spat between China and the US has risen in recent weeks following Trump’s appointment of hardliners to lead US trade policy.”
Brian Davidson, US economist at Fathom Consulting, emphasised the potential costs to businesses in China and to American consumers if Trump’s deal-making with the vast Asian economy turned sour.
“We think Mr Trump is set to renegotiate the US trade relationship with China and the stakes are high: US exporters could lose access to the world’s second largest economy; and US consumers might be deprived of the hundreds of billions of dollars’ worth of goods that they buy from China each year,” he said.
Reasons to worry about the global economy in 2017
China’s slowdown in exports is just one factor behind a cautious outlook for global growth in 2017. Economists are also pointing to:
- The US central bank raising interest rates. The Federal Reserve raised borrowing costs in December 2015 and December 2016 and has signalled more increases to come this year. On the one hand, that is a vote of confidence in the world’s biggest economy. On the other, there are worries that the moves will heap pressures on emerging market economies. When US rates go up, emerging market assets become less attractive and investors shift their money elsewhere for higher returns. At the same time, higher US rates tend to increase the value of the dollar and that inflates the dollar-denominated debts of emerging market countries.
- A new US president with a protectionist stance. Trump has China in his sights as well as Mexico and other big US trading partners. He has announced his intention to pull out of the Trans-Pacific Partnership trade deal and has said he wants to renegotiate the North American Free Trade Agreement between the US, Canada and Mexico. There are worries the protectionist mood will spread beyond America with inward-looking politicians such as France’s Marine Le Pen gaining ground against a backdrop of growing discontent at inequality. But, in the near-term, many forecasters see a potential economic boost from Trump taking over, given his pledge to beef up state spending and cut taxes in the world’s largest economy.
- Political uncertainty is high. It is not just Trump’s arrival in the White House that is concerning investors. The UK’s Brexit talks kick off this year and there are key elections in the Netherlands, France and Germany. Added to that are geopolitical tensions stemming from Russia and elsewhere so economists therefore see plenty of reasons that 2017 could again disappoint for global growth.
- Climate change risks. The World Economic Forum has ranked this as the second biggest risk it sees for this year behind rising income and wealth disparity. That was due in part to the increasingly frequent extreme weather that climate change heralds.