Donald Trump’s Election is Bad News for the Chinese Economy and Raises Fears for the Shanghai Stock Exchange

The election of Donald Trump as U.S. president in November 2024 brings with it a renewed wave of protectionist policies likely to impact the Chinese economy severely. The Trump administration is expected to take a hard line on China, proposing measures that include increased import tariffs, incentives for American companies to repatriate their manufacturing, and stricter restrictions on technological exchanges. These policies could significantly exacerbate the structural and cyclical issues China is already facing, creating a precarious outlook for the Shanghai Stock Exchange.

Protectionism and Its Economic Impact

With Trump back in office, increased tariffs on Chinese imports are likely to be among the first actions taken. During his first term, tariffs had already dealt a severe blow to Chinese exports, with the U.S. being one of China’s primary markets. The potential for renewed tariffs and trade barriers raises concerns over further losses in demand, mounting production costs, and lower profit margins for Chinese exporters. Such a blow to exports would be particularly challenging for China’s manufacturing sector, which is already grappling with intense global competition.

Alongside this, the Trump administration is expected to double down on its encouragement of American companies to relocate back to U.S. soil. These measures could deprive China of much-needed foreign investment and job creation, especially in key industrial regions reliant on global capital. American companies incentivized to shift their operations back home could weaken China’s production capacities and result in job losses, compounding the difficulties faced by an economy that has depended on foreign presence to drive growth.

The anticipated technological restrictions would also pose a significant setback for China. Trump’s focus on limiting technological exchanges with China could again target essential sectors, such as semiconductors and artificial intelligence. Chinese companies like Huawei and SMIC, already sanctioned in the past, could face tighter restrictions that cut off their access to crucial components and advanced technology. This continued dependency on foreign technology is a major vulnerability for China, slowing its pace of innovation and hampering its aspirations for self-sufficiency.

A Fragile Economic Context and a Precarious Shanghai Stock Exchange

These external pressures come at a time when China’s economy is grappling with internal challenges. An aging population threatens the sustainability of long-term growth, with a shrinking workforce and increasing social costs. Compounding this is a real estate crisis that has rocked the foundations of the Chinese economy; declining property prices, shrinking demand, and the enormous debt of developers like Evergrande cast a shadow over financial stability.

Adding to these challenges is the Chinese Communist Party’s tightening grip on private enterprises. As the CCP imposes political control over business operations, Chinese companies find themselves with limited autonomy and reduced flexibility in an increasingly globalized market. The state’s interventionist stance creates uncertainty among investors, who fear a lack of transparency and the arbitrary implementation of policies that could dampen growth and profitability.

Financial markets have a tendency to anticipate and intensify economic trends, especially when they signal trouble. The Shanghai Stock Exchange, already weakened by a series of economic setbacks, could be hit hard by the Trump administration’s renewed trade and technology restrictions. With growing doubts around the competitiveness and growth prospects of Chinese firms, international investors may look to pull their investments out of China, potentially triggering a significant drop in stock prices.

The Chinese government may attempt to stabilize the market with temporary measures, but such interventions are unlikely to provide long-lasting support. While a centralized administration can often control bureaucratic functions, financial markets are less responsive to authoritarian directives. Lasting investor confidence depends on deeper structural reforms rather than short-term adjustments.

A Bleak Outlook for the Chinese Economy

In sum, Donald Trump’s election represents a stark challenge for an already struggling Chinese economy. Protectionist policies aimed at reducing Chinese exports, limiting foreign investment, and restricting access to advanced technology create a highly uncertain economic landscape. The cumulative impact of these structural issues, exacerbated by trade tensions, is likely to spill over into the Shanghai Stock Exchange, foreboding a period of substantial volatility.

In the long term, China may be forced to rethink its economic model to adapt to this challenging environment. However, the real question remains: given its intrinsic nature, can the Chinese Communist Party reform itself to become economically efficient without losing power in a necessarily transparent reform process? For now, the future looks daunting for the Chinese economy, and the Shanghai Stock Exchange may continue to bear the weight of this uncertainty and economic strain.

[Photo by Gage Skidmore, via Wikimedia Commons]

The views and opinions expressed in this article are those of the author.