China: A tale of Trump risks, tariffs, and trade diversion – ABN AMRO

New trade tariffs under a potential Trump 2.0 are a risk to exports, currently a key engine of growth. Still, trade diversion (through countries like Vietnam/Mexico) mitigates effects of trade tariffs over time. Meanwhile, domestic demand remains weak; we cut our 2024 growth forecast to 4.9% (from 5.1%), ABN AMRO Senior Economist Arjen van Dijkhuizen notes.

Beijing focuses more on the supply than the demand side

“As expected, quarterly GDP growth in Q2-24 slowed from an above trend pace of 1.5% qoq s.a. in Q1 to 0.7%, while annual growth slowed more than expected on revisions, to 4.7% yoy (Q1: 5.3%). We still expect some payback in Q3, but cut our 2024 annual growth forecast to 4.9%, from 5.1%.”

“Exports are currently a key driver of growth, although export growth slowed in July. What is more, China’s supply-focused strategy contributes to a broadening of trade spats, with the US/EU (and others) protecting strategic sectors against Chinese (over)supply. This risk would rise under a potential ‘Trump 2.0”. Trump threatens with a 10% universal tariff and higher (±60%), broader China-tariffs compared to his first tariff war in 2018-20.”

“So far, policy easing did not really ‘move the needle’, with Beijing focused more on the supply than the demand side. Policy rates were cut (further) marginally in July, but kept on hold in August. This ‘piecemeal’ easing takes place amidst weak loan demand, with lending growth coming down. Meanwhile, key focus of the CCP’s Third Plenum held in July was Xi’s (supply side) strategy of high-tech development, and self-reliance.”