An independent commission advising Congress on China has recommended revoking Beijing’s trade privileges, potentially granting U.S. President-elect Donald Trump more power to impose tariffs on Chinese imports.
The Chinese economy is now more vulnerable than ever. It is now believed that Trump may impose 60% tariffs on the import of Chinese goods. This might cripple the Chinese economy, which is already standing in a vulnerable position.
However, this is not the first time Chinese goods will face tariffs from Donald Trump’s government, but this time, the Chinese government is on the weaker foot. In 2018, the nation’s property markets were strong, which absorbed most of the tariff shock. However, since 2021, the real estate market has seen a severe downturn, which has plunged local government revenues. Moreover, the crash in the property market has saddled the local government with a humongous amount of debt.
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Economic Times mentioned that the Chinese government’s total debt amounted to 147 Trillion Yuan ($20.7 trillion) at the end of 2023 and 350 trillion Yuan if we add household and corporate debt. This amount is roughly three times the size of China’s economy.
It is not the only factor. China is currently dealing with weak domestic demand. Because of low wages, high unemployment, and other factors, China’s household spending remains below 40% of the GDP, which is 20% below the global average.
The property crisis, excessive debt, and sluggish consumption have intensified deflationary pressures. China’s strategy of channeling resources from the property market into the manufacturing sector instead of boosting consumer spending has contributed to what Western governments term industrial overcapacity. As a result, factory gate prices have declined, driving deflation and further hurting the Chinese economy.
