(Bloomberg) -- Donald Trump may already be influencing the economic agenda in China, according to Goldman Sachs Group Inc.
Officials in Beijing are likely holding fiscal largesse in reserve until they really need it to withstand blowback from a potential Trump presidency on the world’s second-largest economy, Andrew Tilton, Goldman’s chief economist for Asia Pacific, said in a Bloomberg interview Tuesday.
One “reason why they’ve been cautious on doing a lot of fiscal stimulus or demand-side stimulus is just that there is the risk of Trump,” he said. “And I think some of the logic is just: ‘let’s save the ammunition in case we need to do a lot more in 2025.’”
Republican nominee Trump, the former president who’s been leading in polls for months, has vowed to impose 60% tariffs on Chinese imports into the US if elected to the White House in November. That would threaten China’s exports and manufacturing and could alone take around 2 percentage points off its real economic growth, according to Goldman.
Economists have increasingly been calling on Beijing to bulk up the budget deficit and sell additional sovereign debt to give the economy a kick at a time when businesses and households are reluctant to spend.
But policymakers may be opting for fiscal restraint now because those tools could become less effective in the future when needed to counteract a tariff hit. China’s overall government expenditure fell almost 3% in the first half of the year from 2023.
As a result, China has struggled to boost domestic demand and reverse a downturn in real estate and consumption. Economic growth this year has instead relied on global purchases of China’s goods from steel to toys, a strategy that’s becoming complicated by restrictions imposed by trading partners.
The property market and weak consumer spending received little attention in the long-term policies laid by the Communist Party following its Third Plenum last week.
Unease over the outlook is playing out in the equities market, with Chinese stocks declining at a pace unseen since the rout earlier this year. The CSI 300 Index closed down 0.6% Wednesday, taking its three-day loss to more than 3%, the most since Jan. 31.
Trade Curbs
Meanwhile, a growing number of countries have slapped tariffs on Chinese imports — including a decision by the US targeting solar panel imports and the European Union’s electric vehicle levy.
Most recently, Indonesia has investigated tariffs on a number of consumer goods, showing that concern runs far beyond just steel and renewable energy technology.
A Trump presidency carries regional implications beyond China, too.
He could be more likely to boost tariffs on other trading partners that run an outsize deficit with the US. Countries like Vietnam, which have benefited from US-China trade tensions, may end up in the crosshairs, according to Tilton.
“I’m sure it hasn’t gone unnoticed,” he said.
China has started to pull some policy levers to revive growth. The central bank this week unexpectedly cut a key lending rate by 10 basis points to 1.7% in an effort to encourage borrowing.
Goldman expects another similar-sized cut in the fourth quarter, as officials aim for “potentially a little bit looser macro policy over the next few months” to achieve the roughly 5% growth target this year, he said.
The move by People’s Bank of China came ahead of the US Federal Reserve, which risks weakening the local currency.
“China has been a little bit more willing to allow a small amount of depreciation, perhaps anticipating the higher risk of a Trump presidency, or perhaps just having been surprised by how long the US has kept rates high,” Tilton said.
The US dollar would strengthen more under Trump on expectations of bigger fiscal support, which means continued currency pressure across Asia, he said.
--With assistance from James Mayger.
(Updates with Chinese stock performance in ninth paragraph.)
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