Trump's tough stance on China could reshape US trade policy

The Polish Economic Institute analysed the potential consequences of Donald Trump's victory in the US presidential elections for trade relations with China. According to PIE experts, trade policy towards China may significantly tighten.

The Polish Economic Institute in its latest Economic Weekly analyses the potential effects of Donald Trump's victory in the upcoming presidential elections in the USA. The report's authors claim that "although Donald Trump's victory seems the most probable at this stage of the campaign, the approach towards China is not a significant differentiator between the two candidacies." Both Democrats and Republicans demand a policy that contains China, particularly in terms of its economic growth and development of the latest technologies.

PIE experts point out that both sides of the American political scene use similar tools in trade policy, such as tariffs or contesting the WTO dispute resolution system. The authors recall that "it was Barack Obama in 2016 who started blocking new judge appointments to the WTO appellate body, which since 2019 has led to the paralysis of this organisation. The Biden administration hasn't changed anything in this regard," reads the document authored by Bartosz Michalski and Marek Wąsiński.

According to PIE experts, what differentiates the two candidates is their approach to allies, investments in the USA, the language used, and leaving room for potential cooperation with China. The report's authors emphasise that "in May 2024, the Biden administration imposed tariffs on China reaching, among others, 100% of the value of imported electric cars." However, Trump's plans go much further.

Donald Trump, in his campaign, promised to impose a 60% tariff on all products imported from China, as well as a 10% tariff on other imports. According to PIE's analysis, "imports from China would drop from the current £350 billion to just £88 billion." Experts warn that American consumers would mainly bear the costs of such a policy. PIE also cites Goldman Sachs forecasts, according to which "inflation would increase by 1.1 percentage points".

PIE experts emphasise that support for decoupling (a term that refers to separating economies, especially in the context of US-China relations) in the Trump camp stems mainly from non-economic premises and a binary approach to the trade deficit. The report's authors cite the views of Robert Lighthizer, Trade Representative in the Trump administration, who "in his 2023 book entitled 'No Trade is Free' argues not only that strict oversight is needed over high-tech trade and limiting investment ties with China, but also that strategic decoupling and raising tariffs are necessary to eliminate the trade deficit."

PIE indicates that Trump's former advisors present even more radical approaches. The report's authors write that "hard decoupling is advocated by former National Security Advisor Robert O'Brien and former Economic Advisor Peter Navarro, who is serving a prison sentence." Experts also highlight the role of potential Vice-Presidential candidate Senator James D. Vance, who "wants to support industrial jobs in the USA through trade barriers".