Following Trump’s presidential win, concerns linger for China’s economy

It’s possible Trump may impose temp tariffs on China: UBS

Almost a week has gone by since Donald Trump became the U.S.' next president and since then, countries around the world have been worrying over what a new force in the White House might mean.

According to one UBS economist, Trump's victory will have an impact on China's economy through three different channels.

"One is what will the Fed do and the other is Trump's fiscal stimulus — [where] the market is expecting one. The third one is really the trade policy, especially on China," UBS China economist, Tao Wang told CNBC on Tuesday.

"At the moment with the fiscal stimulus, if the U.S. economy is stronger that will obviously benefit global demand in Chinese exports."

"The Fed looks like it's still going to raise interest rates in December — and that will put a bit of pressure on the renminbi as the dollar strengthens and we saw that in the last few days."

A youth wearing a shirt that reads 'we have nothing in common' walks past a news stand advertising local Chinese magazine Global People, showing cover portraits of Sun Yat-sen (centre L) and Donald Trump (centre R), in Shanghai.
Johannes Eisele | AFP | Getty Images

Speaking at the UBS European Conference in London, Wang said that when it comes to trade policy, the area remained uncertain. During his election campaign, Trump had called for 45 percent tariffs on Chinese goods and said he wanted to label the country as a currency manipulator.

"We think that calling China a currency manipulator probably has a reasonable chance (of happening), but in itself it does not really carry a lot of sanction. But if they levy a 45 percent tariff on China then that's basically a violation of WTO agreement," Wang said.

However according to Reuters which cited Chinese state media, China's President Xi Jinping spoke to Trump down the phone on Monday, saying that cooperation was the only choice for relations between the two economies.

According to a statement from Trump's presidential transition office, the two leaders were able to establish a "clear sense of mutual respect" for each another during the call and that Trump believed the countries would forge "one of the strongest relationships" together going forward.

RMB to depreciate further amid stronger USD and outflows: UBS

While Wang believed Trump imposing a tariff was "highly unlikely", if it were to happen, she expected China would retaliate if a tariff was imposed on goods.

"I think China will most likely retaliate if there's a unilateral, sort of illegal tariff imposed on Chinese exports. China could raise tariff on U.S. exports, for example agricultural products, planes and so on. But also we could have trade-related barriers for U.S. financial services and other high-tech products."

As the U.S. is one of the largest markets out there for China—along with the European Union—Wang said it would be "challenging" for China to find other export markets outside the U.S. if a tariff was imposed. She went on to add, that other countries could see ramifications and that it could impact global trade in general.

"I think the 45 percent tariff — that's probably highly unlikely given that it will also hurt U.S. growth and U.S. jobs which he cares about," adding that even if Trump called China a currency manipulator, Wang believed it didn't carry too damage and that the negotiations between the two countries would resume.

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