Impact of China’s Fiscal Initiatives Dwarf Any Effect of Tariffs
The economic impact of the tariffs imposed by former President Donald Trump on China has been a subject of extensive analysis. While precise figures vary, several studies provide insights into the costs incurred by China due to these tariffs.
Economic Burden of Tariffs
A 2019 study by the Federal Reserve Bank of New York estimated that Chinese exporters absorbed approximately 20% of the tariff costs, with the remaining 80% passed on to U.S. consumers and firms. This suggests that while China did experience economic strain, a significant portion of the tariff burden was borne by the United States.
Additionally, a 2020 report by the United Nations Conference on Trade and Development (UNCTAD) indicated that the U.S.-China trade tensions led to a 25% decline in Chinese exports to the United States in 2019, amounting to a reduction of about $35 billion. This decline was partially offset by trade diversion, as other countries increased their exports to the U.S.
Fig 2: Chinese Exports to the U.S. vs Trade Diversion
Broader Economic Impact of Tariffs
It’s important to note that these figures represent estimates, and the actual economic impact on China encompasses various factors, including shifts in global supply chains, currency fluctuations, and domestic economic policies.
Fig 3: Yuan Exchange Rate 2018-2020
China’s 2024 Fiscal Initiatives dull effects of tariffs
In 2024, China implemented a substantial fiscal initiative to address local government debt and stimulate economic growth. The National People’s Congress approved a plan allowing local governments to issue up to 6 trillion yuan (approximately $838.8 billion) in bonds over three years to swap for off-balance-sheet or “hidden” debts. This measure aims to restructure existing liabilities, enhance fiscal transparency, and provide local governments with greater capacity to invest in infrastructure and public services.
Fig. 4: Distribution of Bond Issuance
While this initiative is expected to bolster economic activity, specific projections regarding the exact contribution to GDP growth are not detailed in the available sources. However, such large-scale fiscal measures typically aim to stabilize and stimulate the economy, potentially contributing to achieving the government’s GDP growth target of around 5% for 2024.
Fig. 5: GDP Growth Trajectory
While the tariffs imposed by the United States did have an economic impact on China, the substantial fiscal initiatives undertaken by China in 2024 are likely to have a far more significant effect on the country’s economic trajectory. By addressing local government debt and investing in infrastructure and public services, China is positioning itself for sustained economic growth and stability through a fiscal stimulus akin to benefits targeting aimed at decentralized populations but intervened within the financial markets. Its main effect will be to increase velocity of money within the Chinese market but restrain these funds within China, thereby growing the economy.
References:
- Federal Reserve Bank of New York, 2019.
- United Nations Conference on Trade and Development (UNCTAD), 2020.
- National People’s Congress, 2024.