China Moots Counter Measures To Pressurise The US To Return To The Multilateral Framework

Beijing has long relied on two traditional engines of growth: exports and infrastructure investment. China's household consumption accounts for about 38% of GDP, compared to 60 to 70% in Western countries

The new set of 34 per cent tariffs imposed by US President Donald Trump on Chinese exports could impact the latter’s GDP by two to 2.5 percentage points, further affecting its economy which is struggling with slowdown, a top Chinese economist has opined.

Larry Hu, chief China economist at investment bank Macquarie, estimated that Trump's latest tariffs could reduce China's exports by 15 percentage points and its gross domestic product growth by 2-2.5 percentage points.

"The impact could manifest itself through multiple channels such as falling US demand for Chinese goods, the potential global economic slowdown and the hit on export re-routing," Hu wrote in a research report.

For this year, China has fixed a five per cent GDP target for its economy which is struggling with a slowdown due to stagnating domestic consumption and a crisis in its housing sector. With the latest 34 per cent tariffs, Trump's levies on Chinese exports amounted to 54 per cent. This is in addition to about 15 per cent tariffs imposed during Trump's previous term.

His successor Joe Biden had retained Trump's tariffs. Furthermore, Trump ended the duty-free exemption for China's small parcel exports, which amounted to $30 to 50 billion annually. Consequently, China's exports, a major driver of economic growth, are poised for a sharp decline, the Post report said.

Its exports to the US amounted to $438 billion last year against its imports of $143 billion from the US. Trump has accused China of failing to curb the flow of raw materials to manufacture fentanyl, a potent opioid drug blamed for widespread drug addiction in America. On its part, China retaliated with 34 per cent tariffs against US exports to China targeting the agricultural goods affecting the American farmers in a tit-for-tat retaliation. Beijing also imposed export control measures on certain rare earth metals aimed at hitting high-tech American defence, computers and smartphone industries.

Trump's extreme measures could compel Beijing to undertake long-awaited efforts to rebalance its economy by further stimulating domestic demand, veteran Chinese commentator and columnist Wang Xiangwei said.

That this is a priority was acknowledged publically by the leadership but it has been slow to prioritise, he wrote in his column. This reluctance is tied to China's economic management philosophy, in place since the modern founding of the country in 1949, which emphasises a development model prioritising industrial output over living standards and capital investment over consumer spending.

In other words, Beijing has long relied on two traditional engines of growth: exports and infrastructure investment, Wang said. China's household consumption accounts for about 38 per cent of GDP, compared to 60 to 70 per cent in Western countries, he said.

Revitalising the private sector is crucial for China to pivot to domestic consumption to achieve its five per cent growth target as private businesses contribute 60 per cent of China's GDP and account for more than 80 per cent of urban employment, Xiangwei said.

He further said that the youth unemployment is in double digits.

Meanwhile, the Chinese Foreign Ministry once again hit out at Trump's tariffs on Monday asserting that the levies reflected unilateralism, protectionism and economic bullying.

Chinese Foreign Ministry spokesman Lin Jian told a media briefing that the new tariffs harmed the stability of global production and supply chain and seriously impacted the world's economic recovery. Separately Ling Ji, vice-minister of commerce and deputy China international trade representative told a roundtable meeting with US-funded companies that China has taken firm counter measures in response. They are aimed not only at defending the rights of affected enterprises but also at letting the US return to the multilateral framework.

Calling the US itself as the root-cause of the current turbulence, Ling urged American businesses operating in China to examine the situation objectively, voice rational perspectives, and take pragmatic steps to help stabilise global supply chains and promote cooperation for mutual benefits.