How Will China Deal With Trump 2.0?

Summary

Podcast Summary: WSJ What’s News – "How Will China Deal With Trump 2.0?"

Release Date: January 17, 2025
Host: Kate Bullivant, The Wall Street Journal

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Introduction

In the January 17, 2025 episode of "What’s News" hosted by Kate Bullivant of The Wall Street Journal, the discussion centers on the looming confrontations between the United States under President Donald Trump’s administration and China. The episode delves into Trump’s strategies to advance his policy agenda, China’s economic outlook amidst impending trade tensions, and the broader implications of a potential trade war on the global stage.

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Trump’s Strategy: Bypassing Congress with Executive Orders

At the outset, Kate Bullivant outlines President Donald Trump’s intention to sidestep Congress to implement his primary policy goals—specifically, increasing tariffs and overhauling the immigration system. Citing a meeting from earlier in the month, Bullivant notes, “Trump has already drafted roughly 100 executive orders and that he's prepared to push the limits of his authority to tackle those issues” (00:49).

Despite expanding executive authority over immigration and tariffs, internal divisions within Trump’s team could hinder his ambitious plans. Notably, since his election, Trump has moderated some of his harsher rhetoric on mass deportations, indicating a potential softening of his stance in response to political realities.

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Department of Government Efficiency (DOGE): Elon Musk’s Role

A significant development covered in the episode is the establishment of the Department of Government Efficiency (DOGE), led by Elon Musk, a close Trump confidant. According to sources, DOGE is actively seeking to reduce federal spending, shrink the workforce, and restructure government agencies through executive actions rather than legislative changes (02:34).

Tim Higgins, a Wall Street Journal columnist, is referenced regarding Musk’s efforts to streamline government operations, although Musk emphasizes that his initiatives are guided by personal experiences with regulations hindering innovation. Musk stated, “...allocating resources within the government... more resources should be put towards securing the US Border with Mexico” (03:14).

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SpaceX Rocket Explosion: A Brief Detour

The episode briefly touches on a recent SpaceX incident where an uncrewed Starship rocket exploded during a test flight, disrupting air travel in the Caribbean. Elon Musk attributed the explosion to “a leak in part of the ship” (03:59), highlighting ongoing challenges with experimental aerospace technology.

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Main Discussion: China’s Economic Response to Trump 2.0

The core of the episode features an in-depth conversation with Jason Douglas, Asia economics reporter for the Wall Street Journal, discussing how China is preparing to navigate a renewed confrontation with the United States under Trump’s second administration.

China’s Current Economic Landscape

Despite external pressures, China announced it met its GDP growth target for 2024, achieving a 5.4% increase in the fourth quarter (04:30). However, economists express skepticism about the sustainability of this growth, citing underlying issues such as a significant property downturn that has dampened consumer spending and strained government finances.

Potential Impact of Increased US Tariffs

Douglas explains the stark contrast between the current economic conditions in the US and China. He states, “The US has been growing very strongly since the pandemic ended, but China has been much weaker, been weakened by this enormous property bust... This time around, it [China] finds itself much more dependent on manufacturing and exports” (05:52). This dependency heightens China’s vulnerability to US-imposed tariffs, with economists estimating a potential reduction in GDP growth by 1.5 to 2.5 percentage points (06:26).

China’s Preparations and Countermeasures

In anticipation of a trade war, Douglas outlines China’s multifaceted response strategy:

• Control Over Critical Resources: China holds significant sway over global supplies of critical minerals and machinery essential for their extraction, which they may restrict to pressure US industries.
• Retaliatory Tariffs: Mirroring their approach in the first trade war, China could impose tariffs on US imports.
• Pressure on US Companies in China: Implementing stringent regulations and operational challenges for American businesses operating within China.

Douglas emphasizes, “...the macro impact of those kind of things is probably going to be less on the US Than tariffs will be on China” (07:50), suggesting that while the US may endure economic pain, China’s economy faces more substantial risks.

China’s Economic Stimulus Efforts

To mitigate the impact of potential tariffs, China has been injecting stimulus into its domestic economy by cutting interest rates and promoting growth internally (07:53). However, the effectiveness of these measures hinges on whether the Chinese government can significantly boost consumer spending. Douglas notes, “Most economists following China expect some sort of effort to lift spending... but maybe not so much on the deep reforms that would be needed to drive a really durable change” (08:16).

Evaluating the Effectiveness of US Tariffs

Douglas discusses the challenges in reducing US reliance on Chinese goods through tariffs. He points out that despite US imports from China decreasing due to initial tariffs, dependencies persist through supply chains and operations in countries like Mexico and Vietnam (08:44). The consensus among economists is that tariffs may encourage domestic production but achieving significant detanglement could take decades (08:57).

Global Ripple Effects of a Trade War

The potential fallout from a severe economic downturn in China could reverberate globally. Douglas outlines two scenarios:

1. Increased Domestic Spending in China: If China successfully stimulates its economy, it could lead to higher imports of commodities, benefiting global markets.
2. Escalated Trade War: Persistent aggressive trade policies by China could prompt other nations to impose their own tariffs, leading to a broader and more disruptive global trade conflict.

He summarizes, “That could help a lot of countries... or... other countries probably won't tolerate another big export push by China and will try to shield their domestic industries with similar tariffs” (09:34).

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Conclusion

As the episode winds down, Kate Bullivant summarizes the precarious balance between US policy shifts under Trump and China’s strategic economic maneuvers. With Trump poised to implement extensive executive actions and China confronted with both internal economic challenges and external trade pressures, the global economic landscape faces significant uncertainty. The potential for a broader trade war poses risks not only to the economies of the US and China but also to global markets interconnected through intricate supply chains.

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Key Quotes

• Jason Douglas [00:59]: “If China doubles down on what it's doing now and tries to keep shoving more goods into the rest of the world, then what we're likely to see is a much broader trade war.”
• Elon Musk [03:14]: “More resources should be put towards securing the US Border with Mexico.”
• Jason Douglas [05:52]: “The US has been growing very strongly since the pandemic ended, but China has been much weaker... This time around, it finds itself much more dependent on manufacturing and exports.”
• Jason Douglas [07:50]: “...the macro impact of those kind of things is probably going to be less on the US Than tariffs will be on China.”
• Jason Douglas [09:34]: “Certainly. And it could happen kind of in either direction... similar tariffs... would try to shield their domestic industries.”

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This episode of "What’s News" offers a comprehensive analysis of the escalating tensions between the US and China, providing listeners with nuanced insights into the potential economic and geopolitical ramifications of Trump’s policy strategies and China’s responses. For those seeking to understand the complexities of international trade dynamics and their global impact, this episode serves as an invaluable resource.

Transcript

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[Kate Bullivant]

Donald Trump signals he's prepared to bypass Congress to pursue his top priorities. Plus, China said it hit its growth target for 2024. But how will its economy fare if Trump raises tariffs? And what could be the ripple effects of a trade war?

[Jason Douglas]

So if China doubles down on what it's doing now and tries to keep shoving more goods into the rest of the world, then what we're likely to see is a much broader trade war.

[Kate Bullivant]

And the Gaza ceasefire deal appears to be back on Track. It's Friday, January 17th. I'm Kate Bullivant for the Wall Street Journal, filling in for Luke Vargas. And here is the AM Edition of what's news, the top headlines and business stories moving your world today. Israeli Prime Minister Benjamin Netanyahu says negotiators have reached an agreement on a Gaza ceasefire, ending two days of debate that underscored the fragility of the pact. The deal now to Israel's security Cabinet for approval before being submitted to a vote by the full cabinet. Back in Washington, Donald Trump has told Senate Republicans he won't wait on them to begin implementing tariffs and overhauling the immigration system, his two biggest policy pledges. That's according to people present at a meeting earlier this month in which Trump told lawmakers that he has already drafted roughly 100 executive orders and that he's prepared to push the limits of his authority to tackle those issues. The executive branch has expansive authority over immigration enforcement, and Congress has delegated more authority on tariffs to the president over time. Still, divisions within Trump's inner circle could hamper his most ambitious proposals. And since the election, Trump has softened some of his campaign rhetoric around mass deportations. A spokeswoman for the Trump transition didn't respond to a request for comment. Meanwhile, we report that the newly created Department of Government Efficiency, led by Trump confidant Elon Musk, has already started to look for ways to cut spending, shrink the federal workforce and restructure agencies, according to people familiar with the matter. DOGE officials have focused on how those goals can be met through executive action rather than legislation, according to a person familiar with the plans. The agency is likely to have an office on the White House campus, positioning Musk a short walk from the Oval Office. A representative for the Trump transition team didn't respond to requests for comment. WSJ columnist Tim Higgins has been keeping a close eye on the billionaire's efforts to help the government slash costs.

[Elon Musk]

Elon has already talked about some of the ways in which he is kind of thinking about changes that he'd like to see. He had talked about his personal experiences with certain regulations, whether it's environmental getting in the way of what he sees as innovation, and his ability to launch rockets with SpaceX. So it would seem that those personal experiences might help guide him. He has also talked about allocating resources within the government. He has talked about how he's kind of in agreement with those folks out there who don't understand why so many resources are given to the IRS for audits and that sort of thing, whereas they feel like more resources should be put towards securing the US Border with Mexico.

[Kate Bullivant]

And for more on this, check out today's Tech News Briefing podcast. They'll be tracking Musk's first 100 days in the Trump presidency with regular updates From Tim A SpaceX spacecraft has exploded during a test flight, temporarily disrupting air travel in the Caribbean as pieces of debris were seen streaking across the sky. The uncrewed starship rocket that launched Yesterday evening was SpaceX's seventh mission of a powerful but still experimental vehicle. It consists of a booster that propels a spacecraft stacked on top. According to a livestream of the mission provided by SpaceX. The spacecraft separated from the booster shortly after liftoff as designed, but soon exploded. SpaceX chief executive Elon Musk said initial data pointed to a leak in part of the ship. Coming up with Trump's inauguration just days away, we take a look at how China is bracing for a trade war. That story after the break. Beijing has managed to hit its 5% growth target for 2024 despite multiplying problems that prompted a stimulus injection. That's according to GDP figures released overnight, which showed growth accelerating to 5.4% in the fourth quarter of the year. But many economists remain sceptical about the sustainability of such an upturn, while Donald Trump's impending to the White House is likely to add to the many headwinds that China's economy faces. So for a look at how all of that might play out, I'm joined by Journal Asia economics reporter Jason Douglas. Jason, you write that China coped Well under Trump 1.0. What's the difference this time around?

[Jason Douglas]

The biggest difference is the diverging economic fortunes, if you like, of the US And China. So the US has been growing very strongly since the pandemic ended, but China has been much weaker, been weakened by this enormous property bust that's sapping consumer spending and straining government finances. And this time around, it finds itself much more dependent on manufacturing and exports than it has been for a while. And that means it's much more at risk in a new trade war.

[Kate Bullivant]

Can we quantify the expected hit to China's economy from Trump tariffs if he does go to 60%, as expected?

[Jason Douglas]

There's a pretty big range of estimates, and it all depends on how far China goes to offset to the tariffs with domestic stimulus, how far it lets the exchange rate fall, whether or not other countries retaliate. So there are lots of moving parts. But anyway, most economists put the hit to somewhere in the region of maybe 1.5 to 2.5 percentage points off GDP growth. So that would be a pretty substantial hit for China, for sure.

[Kate Bullivant]

So how is China preparing for this kind of escalation? I mean, they have the option of retaliating with tariffs of their own, right?

[Jason Douglas]

They do, and that's certainly what they did in the first trade war. They raised tariffs and US Imports kind of tit for tat, if you like. This time around, they have a much broader array of countermeasures that they are going to deploy. Probably the most potent is their stranglehold on global supply of critical minerals and on the kind of machinery that you need to get critical minerals out of the ground. China has shown that it's willing to restrict the supply of these, which could be quite painful, at least for American companies. The other tool that they have in their belt, if you like, is they can make life very difficult for US Companies operating in China. So they have all these different ways that they can hit back. I think it's fair to say, like the macro impact of those kind of things is probably going to be less on the US Than tariffs will be on China. But nonetheless, it can be the very least annoying for the US and at most, pretty painful for some corners of its economy.

[Kate Bullivant]

So how is China bracing for impact?

[Jason Douglas]

The big thing, it's been adding stimulus to its domestic economy, so it's been cutting interest rates and trying to shore up growth back home. And the big question mark for China this year is whether the authorities in Beijing can or will do enough to really fire up domestic spending and in particular, consumer spending to offset these headwinds that are going to come from tariffs.

[Kate Bullivant]

And do economists think Xi is prepared to do that.

[Jason Douglas]

The balance of opinion is probably not. I mean, most economists following China expect some sort of effort to lift spending in the year ahead in the short term, but maybe not so much on the deep reforms that would be needed to drive a really durable change in its economic structure, to really give consumption a boost. That would be things that would reduce Chinese households propensity to save so big, reforms to health care, to education, to pensions. Things that would really build out what is, in fact, a very threadbare social safety net.

[Kate Bullivant]

So a tougher terrain for China this time around. But from the experts you spoke to, how successful do they think that Trump's tariffs will actually be in reducing the US's reliance on Chinese goods?

[Jason Douglas]

Yeah, this is a tricky one. I mean, the US still imports a lot from China, although China's share of everything the US imports has gone down since the first trade war because of the tariffs. But the US now imports a lot more stuff from places like Mexico, from Vietnam. And of course, the suspicion is that a lot of these goods are really Chinese goods in disguise, or at the very least, they're goods that are made with lots of Chinese parts, probably by Chinese companies. So the dependence is still very much there. Economists would say tariffs will probably do something to encourage more domestic production, but it'll just take decades to really untangle these two economies, if that is indeed the goal of the second Trump administration.

[Kate Bullivant]

And finally, if tariffs deliver a big shock to China's economy, and given its outsized significance on the global stage, could we see ripple effects across the rest of the world?

[Jason Douglas]

Certainly. And it could happen kind of in either direction. Right. So if China really juices domestic spending to offset tariffs, then you would expect it to suck in a lot more imports of commodities and food and energy and so on, which would help a lot of countries. The flip side is if it doubles down on what it's doing now and tries to keep shoving more goods into the rest of the world, then what we're likely to see is a much broader trade war, because we have a little bit of evidence from rising tariffs elsewhere and so on, that other countries probably won't tolerate another big export push by China and will try to shield their domestic industries from Chinese competition with similar tariffs to what the US is proposing.

[Kate Bullivant]

That was Journal Asia economics reporter Jason Douglas. Jason, thanks so much for your time.

[Jason Douglas]

My pleasure. Thank you, Kate.

[Kate Bullivant]

And that's it for what's news for this Friday morning. Today's show was produced by Daniel Bark with Supervising Producer Christina Rauca. And I'm Kate Bullivant for the Wall Street Journal, filling in for Luke Varg, us. We'll be back tonight with a new show. Until then, have a great weekend, and thanks for listening.