China: Potential bilateral trade tensions from US - BNPP

According to the research Team at BNP Paribas, for China, one key concern is potential bilateral trade tensions as Mr Trump has made clear that his administration wants to make actions against China a key component of its goal to reduce the US’s trade deficit.

Key Quotes

“Proposals have included revising issues like the one-China policy, labelling China as a currency manipulator and imposing an import tariff of up to 45%. Of course, bilateral trade conflicts with the US would not be good for China’s economic stability.”

“Bilateral trade discussions could prove to be complicated. If negotiations go sour, and a trade war ensues, economic damage to both sides could be sizable. China would surely suffer: the US is China’s most important export destination. Going by Chinese statistics, the US market takes 18% of China’s direct exports. But, considering the final destination of Chinese exports, we estimate the US market ends up taking roughly 30% of China sales abroad.”

“If bilateral trade negotiations go well, China could import more technological products from the US, and could also increase its exports of building materials and construction machines, given increased infrastructure spending in the US. On the financial side, Chinese capital outflows could weaken the RMB, though China has taken pre-emptive measures to counter the risks.”