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10 Nov 2016

International Economy

New US Foreign Trade Policy to Determine Future US-China Economic Relations (Current Issue No. 2794 Full Ed.)

With Donald Trump becoming the 45th President of the US, US foreign trade policy towards China may change. This could have serious implications towards their economic relationship given that Mr. Trump has set his sights on placing higher tariffs on Chinese imports, claiming that ‘Beijing has devalued the Yuan to benefit its exports', and is a “currency manipulator”.

Currently, given that the US and China are heavily dependent on each other in trade and investment, we at KResearch have concluded some observations towards future US foreign trade policies vis-à-vis China and possible outcomes:

President-elect Trump's vow to raise tariffs specifically on Chinese imports, if implemented, would inevitably affect China's export performance to the US. In a worst-case scenario, 45-50 percent of all Chinese exports to the US could be threatened. However, any plan for such a tariff hike might not benefit the US because many products imported from China do not have production bases within the US. That could drive up household expenses in the US, as well.

His call for US multi-national companies to leave China will likely receive only a lukewarm response from those firms because the main objective for many of them towards entering China was chiefly to access the Chinese consumer market. Moreover, the likelihood that they would relocate to other countries looks slim because China – as the world's most important labor-intensive production base – is the only foreign country that can infrastructurally accommodate their large production bases.

Since neither country would benefit if China imposed some forms of retaliation against the US after the implementation of a stern US policy on China. It is expected that the US might initiate a bilateral policy negotiation with China to improve American interests there, which might include calling for Beijing to open its domestic market further, including investment, service, financial and financial service sectors. Meanwhile, China may seek to revaluate its currency in response to the “currency manipulation” accusation of Mr. Trump because Beijing may not have a lot of bargaining power right now amid fragile Chinese economic performance.

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International Economy