Goldman Sachs on what a second Trump presidency means for China

BEIJING — If Donald Trump won the US presidential election, he plan to apply 60% tax rate Imposing tariffs on Chinese goods could be a “sharp downside growth risk” for China, according to Goldman Sachs.

Trump’s Chance become the next president mark higher after he survived an assassination attempt on Saturday and chose former critic JD Vance as his running mate two days later.

“Exports are a big bright spot in the Chinese economy right now and I think policymakers may want to be prepared,” Hui Shan, chief China economist at Goldman Sachs, told CNBC.Squawk Box Asia” on Tuesday.

“We are seeing tariff talk, not just in the United States but also in other major trading partners of China,” she said. “So this is not going to be a sustainable growth driver for China.”

The United States is China’s largest trading partner on a country-by-country basis, while the European Union lags behind Southeast Asia as China’s largest regional trading partner. Trump raised tariffs on Chinese goods as president in 2018 and has threatened to increase them by 60% if re-elected this fall.

According to Citi, the contribution of goods exports to China’s real GDP growth in the second quarter of this year was the highest since the first quarter of 2022, when Covid-induced restrictions limited domestic economic activity.

Meanwhile, Beijing’s push to develop high-end manufacturing has yet to fully offset the real estate downturn and sluggish consumption.

US officials such as Treasury Secretary Janet Yellen have said that China’s policies to promote industrial capacity and technological self-sufficiency have led to Job Loss in the United States.

In his first interview since being picked as Trump’s running mate, Vance told Fox News that rather than the war in Ukraine, China is the “real problem” for the United States and pose the “biggest threat”.

Biden’s campaign has criticize Trump’s choicesaid the choice was made intentionally “because Vance will do what Mike Pence will not do on January 6: bend over backwards to support Trump and his radical MAGA agenda, even if it means breaking the law and endangering the American people.”

Supporters of then-president Trump stormed the United States Capitol in an attempt to overturn the results of the 2020 presidential election on January 6, 2021.

Asked about Vance’s comments, Chinese Foreign Ministry spokesman Lin Jian said Tuesday at a daily press briefing, “We have always oppose making China an issue in the US election.”

China’s economy grows 4.7% in the second quarter from a year earlier, missing economists’ expectations and bringing first-half growth to 5%. That prompted some calls for more stimulus if the world’s second-largest economy is to achieve 5% growth for the full year.

Downside risks from the potential for higher U.S. tariffs under Trump come mainly from greater uncertainty and tighter financial conditions, as well as pressure on the Chinese yuan, Goldman’s Shan said. She pointed out that the 2018 tariffs did not significantly reduce China’s exports to the U.S.

More recent data, however, show a slowdown in that trade. China’s exports to the United States modest increase of 1.5% in the first half of the year.

“Policymakers need to think about domestic demand and focus on something more sustainable and long-term for the growth outlook,” Shan told CNBC on Tuesday.

She added that if a 60% tax rate were applied, “this is quite a high tax rate and we think the impact on the macro economy would be quite significant.”

China has so far refrained from stimulus measures. The country’s top leaders are meeting in Beijing this week to The much anticipated third plenary session, is expected to determine long-term economic policy goals.

Weak retail sales and disappointing growth in the second quarter will not be enough to convince Beijing to step up support for the economy, Citi analysts said on Monday.

“Policymakers may tolerate short-term weakness amid structural changes in the property sector,” the analysts said. “More concerns about trade and external relations may also prompt China to retain policy space for the future.”

Citi forecasts China’s real GDP to grow 5.0% this year.

China Exports in US dollar terms increased 3.6% in the first six months of the year after global demand for Chinese goods in recent months was higher than expected.

“Investment in manufacturing and infrastructure is likely to remain strong and exports will remain fairly strong. [year-on-year] growth in [the third quarter]with the ability to pre-load shipping orders in [the second half of the year] due to concerns about higher tariffs,” Tao Wang, head of Asia economics and chief China economist at UBS Investment Bank, said in a note Tuesday.

She said the Chinese government may not want to roll out major stimulus measures in the coming months to conserve resources in case the economy weakens further and tariffs increase.

UBS forecasts China’s economy will grow 4.9% this year.

“He’s a businessman, and like any negotiator, he likes to set a low price, and set a low price, and then go up from there,” the portfolio manager said on “Asian Street Signs“

Speaking on foreign policy, Harburg pointed out that a Biden presidency would also mean continued tariffs and “intrusion into China’s internal affairs” — which would not significantly improve China’s economy or US-China relations.

A Trump-China partnership would represent “a more binary potential for a positive outcome for China,” he said.

CNBC’s Sonia Heng contributed reporting from Singapore.