Donald Trump’s electoral victory has been met, at least officially, with indifference in China.
Indeed, a second Trump administration does not have to be worse for China than the Biden administration. Much will depend on whether Trump finally opts for rapprochement or continues to push for separation.
When Biden came to power, Chinese leaders hoped that China-US relations would improve and shift away from Trump’s trade war and containment. But Biden levied additional tariffs on Chinese imports and, most importantly, placed much tighter export controls on US technology.
This brought China to the realization that US-China strategic competition is here to stay, regardless of whether a Democrat or Republican is in the White House.
Yet the new Trump administration could offer some advantages to China for four main reasons. First, the Chinese leadership knows that Trump’s positions can be erratic and that he likes to strike and announce big deals.
This is exactly what happened in December 2019 when then-Chinese Vice Premier Liu He reached the so-called Phase One trade deal with Trump.
The deal lifted at least some US tariffs on Chinese goods in exchange for US$600 billion in Chinese imports from the US and preferential access to the Chinese market for US companies, especially in the financial sector.
Second, Trump’s isolationist agenda benefits China in that traditional US allies, including the European Union, will likely need to look elsewhere for economic support.
This might imply getting closer to China. Negotiations between China and the EU on a Comprehensive Agreement on Investment (CAI) accelerated just after the signature of the Phase One deal, which undermined European interests in China.
Thirdly, Trump has been clear about his intention to end the war in Ukraine as soon as he becomes president. A quick fix is bound to accommodate some – possibly many – of Russia’s requests, which in turn would be net-positive for China.
A US administration that abandons Ukraine will undermine the Taiwanese government’s belief that the US will support it in the event of a Chinese invasion or blockade.
Fourthly and more generally, Trump’s victory will make it easier for Chinese leaders to spread the narrative of America’s decline and the decadence of its democracy.
China’s leverage over the Global South has increased enormously since Israel’s military attack on Gaza and, more recently, Lebanon. That leverage was built in part on good will generated by China’s long-standing initiatives, including the Belt and Road Initiative and BRICS.
Trump is expected to offer international partners fewer incentives for cooperation and a more transactional approach than the Biden administration. This, in turn, could push the Global South even closer to China.
But Trump’s return might also come at a high economic cost for China. Trump has committed to imposing 60% additional tariffs on Chinese exports to the US and, more generally, to push for further decoupling from China.
During Trump’s first term, Chinese investment into the US plummeted as requirements were tightened through reforms to the Committee on Foreign Investment in the United States (CFIUS), an interagency committee that reviews the national security implications of foreign investments in the US.
At the same time, Chinese firms were discouraged from raising funds in the US as Trump threatened to delist many of them from US stock markets. People-to-people exchanges were also made more difficult, especially for students of the hard sciences.
For his second term, Trump has given every sign that tech, financial and people-to-people decoupling can be expected to continue.
Against this sweeping backdrop, China’s leadership will have scant room to retaliate against Trump’s tariffs and will probably opt to negotiate a deal as soon as possible.
For Trump to agree to a “Phase Two” deal, China will have to offer much more than it did in 2019, both in terms of the volume of imports from the US it agrees to take and by providing preferential access to US companies in many more sectors.
In this scenario, the bigger loser may well be Europe because a large share of its exports to China competes with those from the US. Aerospace is a good example but there are several others.
Of course, Trump’s policies will have a direct impact on the EU, which could be larger than they are on China. A new US-China trade and investment deal could make things even more difficult for Europe.
The best outcome for the EU would be if Trump continues to push for decoupling from China, rather than reaching a second trade deal.
While the consequences of decoupling are obviously negative in terms of further fragmentation of global trade, there will be less diversion of Chinese trade away from the EU towards the US than in a scenario of US-China rapprochement.
Alicia Garcia-Herrero is chief economist for Asia Pacific at Natixis and senior research fellow at Bruegel.