Monday in China Announced discounts to record interest rates, the latest in a series of measures to revive confidence in an economy struggling to grow after the Covid pandemic. Chinese stock markets swung as investors expected sweeping action from official press conferences, then were disappointed that policies fell short of the economic challenges China faces.
However, Beijing’s “relatively hesitant policy easing” may be due to Beijing’s desire to maintain room for maneuver in the event of renewed trade friction with the United States, economists at Goldman Sachs noted in a report released Monday.
Republican presidential candidate Donald Trump has threatened to impose higher tariffs on foreign goods entering the United States, with tariffs on goods coming from China reaching 60%. Economists at Goldman Sachs expect that tariffs at this level could shave 2 percentage points off China’s GDP growth.
Chinese policymakers may then launch more stimulus to offset the negative effects of US tariffs. Economists at Goldman Sachs note that Beijing may also resort to retaliatory tariffs, controls on important exports such as rare earth metals, and the current decline in the value of the currency.
Since late September, Chinese officials have announced a series of measures to help the economy stay on track and achieve its 5% GDP growth target. These measures included lowering interest rates, reducing reserve requirements on banks, and expanding the “white list” of housing projects eligible for government financial support.
But economists and analysts say China will need to do more to revive its economy, burdened by a years-long mortgage debt crisis and low consumer confidence.
“The market may have to wait longer for decisive policy action,” Larry Hu, chief China economist at Macquarie, wrote in a note issued Thursday following China’s disappointing housing policy announcement.
Targeted tariffs versus comprehensive tariffs on China
Both political parties in the United States have expressed their willingness to impose more tariffs on Chinese imports, even if they disagree on how best to implement them.
In an interview with Goldman Sachs, Kevin Hassett, who served as chairman of Trump’s Council of Economic Advisers, said Chinese tariffs should be a policy priority for the next administration. In particular, he accused China of corporate spying and intellectual property theft “beyond the limits in which any other country engages.”
“China deserves any harsh trade policy that a country decides to impose on it,” he said. The Trump-era economist also expressed concerns that China’s “huge surplus steel capacity clearly puts it on the war footing.”
By comparison, Jared Bernstein, the current head of the Biden administration’s Council of Economic Advisers, noted in his interview with Goldman the importance of distinguishing between targeted and blanket tariffs. While targeted tariffs could help the United States prevent a hollowing-out of domestic industry, “blanket tariffs that go beyond helping targeted sectors will hit American consumers particularly hard — because they effectively represent a large national sales tax,” the economist said.
He added: “Blanket tariffs could be very disruptive and disruptive.”