Donald Trump’s 45% Tariff will Wipe $420 bn Off China Exports, FDI to Exit?

Victory for Donald Trump in the U.S. presidential election could be a game changer for China’s economy.

Donald Trump promises to slap punitive 45% tariffs on Chinese imports may wipe hundreds of billions off the value, according to new research at Daiwa Capital Markets in Hong Kong.

The tariffs would likely be placed on a wide range of goods from machinery and tools to toys and home appliances.

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 $420bn. (This could mean an opportunity for countries like India!). It will mean a 4.82% blow to China’s GDP, or about a half trillion dollars’ worth. An estimated $426bn in FDI repatriation may result as companies withdraw from the land of the Dragon.

The impact of trade and FDI will widen the capital account deficit. Together, this dynamic would put downward pressure on the yuan.

According to statements on his website, Trump has promised to label China a currency manipulator and to “reclaim millions of American jobs and revive American manufacturing by putting an end to China’s illegal export subsidies and lax labour and environmental standards.” The Republican Party nominee has argued that the yuan is as much as 40 percent undervalued deliberately to give exporters an advantage at the expense of American manufacturers.

China’s quasi-fixed-exchange-rate regime and regular intervention by the People’s Bank of China did help limit the yuan’s gains over the past 20 years. At the same time, ultra loose monetary policy in the U.S. supplied China with limitless dollars at a low cost so China could recycle its surplus savings into funding the U.S. budget.