The outcome of Tuesday’s US presidential election is expected to shape the scale of China’s long-awaited fiscal stimulus package, with a victory for former president Donald Trump likely to prompt greater spending to offset the impact of any potential tariffs, analysts said.
The estimates suggest the scale of China’s fiscal stimulus package would be around 10 to 20 per cent bigger under a victory for Republican nominee Trump compared to Vice-President and Democratic rival Kamala Harris.
And the scheduling of a five-day meeting of China’s top legislative body, the National People’s Congress (NPC) Standing Committee, to overlap closely with the US election reflects the importance of external factors on domestic policies, highlighting the impact of external shocks on the economy and sentiment, said Su Yue, principal economist for China at the Economist Intelligence Unit (EIU).
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“The NPC is likely to determine the scale of fiscal stimulus based on the US election outcome. If Trump comes to power, the government may signal more aggressive stimulus to offset market concerns about China,” Su said.
The EIU expects about 6 trillion yuan (US$844 billion) in special sovereign bonds for debt swaps and large bank recapitalisation, and 4 trillion yuan in special local government bonds for the acquisition of idle land and unsold housing inventory, primarily aimed at easing liquidity issues for developers.
“If Trump is elected, the stimulus is likely to exceed this scale, or the NPC will issue a more proactive commitment,” Su added.
Nomura economists Lu Ting, Wang Jing and Harrington Zhang expect the stimulus package could range from 2 to 3 per cent of gross domestic product annually over the next several years, with a Trump victory likely pushing it toward 3 per cent.
“We believe the US election results will have some impact on the size of Beijing’s stimulus package, though its impact should be quite limited, as the major challenges for Beijing emanate from within rather than outside,” they said.
Lawmakers began the meeting on Monday in Beijing, with a potential stimulus package expected to be among the key issues discussed.
Analysts broadly expect lawmakers to approve an injection of around 1 trillion yuan into banks via special sovereign bonds, alongside a government bond issuance for debt swaps over the next few years, with a range estimated of between 6 trillion yuan and 10 trillion yuan.
During his campaign, Trump threatened a 60 per cent tariff on Chinese imports, while Harris has not signalled a divergence from the tech restrictions implemented under the Biden administration.
Exports have remained a crucial driver for the world’s second-largest economy, which is still grappling with shrinking domestic demand, with the US still one of the top destinations for Chinese shipments.
“If higher tariffs materialise, policymakers appear willing to launch more stimulus to offset any growth drags,” economists at investment bank Goldman Sachs said at the end of October.
The report said Trump was expected to “quickly move to raise tariffs on imports from China,” while adding his proposed 60 per cent rate was plausible on certain strategic imports, and that tariffs on Chinese consumer products would increase by less.
“[This may result] in an average tariff hike on imports from China of around 20 percentage points – less than proposed but still more than double the rise during the 2018-19 trade war,” the report added.
It pointed out an estimated drag of 0.65 percentage points on China’s cumulative GDP by the trade war amid lower exports, increased uncertainty and tighter financial conditions.
A 60 per cent tariff, they added, would impact real GDP by around 2 percentage points.
Additional countermeasures from Beijing could include allowing the yuan to depreciate, cutting US imports, imposing retaliatory tariffs and restricting exports of critical materials, including rare earths to the US, the report said.
Customs data showed the US was China’s top market in September, with shipments up by 2.16 per cent year on year, surpassing exports to the European Union and the Association of Southeast Asian Nations.
“While China has remained ambiguous about the actual fiscal stimulus, I doubt whether it would step up the size massively at this stage regardless of the US election outcome,” said Gary Ng, a senior economist at French investment bank Natixis.
He added Beijing would continue to back the economy to meet its growth target of “around 5 per cent”, but the package would be more of a “painkiller”.
“The final size may be bigger in Trump’s victory, but it may only come slowly,” Ng said.
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