Former US president Donald Trump recently confided that, “to me, the most beautiful word in the dictionary is tariff.” During his campaign, he has on several occasions threatened to impose tariffs of 50-60% on Chinese imports and up to 20% on imports from the rest of the world. A victory for Trump in the upcoming US election would put him in a position to make good on those threats—a risk that is now worrying markets as the polls move in his favor.
But how much would a second round of tariffs hurt China? After all, Chinese exports are 60% higher today, and China’s share of global exports is 2 pp higher, than they were in 2017 before the tariffs his administration imposed. Yet that first round of tariffs troubled Chinese exporters more than those top-line numbers might suggest. Their incredible performance in the face of the 2018-20 US tariffs was the result of three major tailwinds, which are very unlikely to reoccur: a huge US consumer stimulus, the absorption of Russian import demand and significant currency depreciation. A second round of US tariffs, at the scale that Trump has floated during the campaign, would likely hurt a lot worse than the first.
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