With the inauguration of Donald Trump as the new President of the United States next week, financial markets have been speculating about the potential impact of his new economic plans, especially his policies on China. The relationship between the U.S. and China is crucial to global growth, and is the most important to the next four years.
Mr. Trump’s policies will have a major impact on China as the Chinese economy is undertaking ongoing strategic reforms to the capital markets to become more integrated to the global system. If the reforms are successful, they will be positive for the valuations of A-shares in China.
Since the U.S. Presidential elections in November, Mr. Trump signaled that he will roll back the U.S. government’s foreign policies to focus on domestic economy. This will provide more space for China to expand its role in the global economy. China’s “One Belt One Road” plan may benefit from Mr. Trump’s policies and face fewer obstacles from the U.S.
Mr. Trump has said he is going to discontinue the plans for the TPP (Trans-Pacific Partnership), and this has prompted institutional investors in China to raise their rating on A-shares.
The risks of a global trade war are low under Mr. Trump. Even though he had said previously that he would impose 45% tariffs on Chinese imports, and called China a currency manipulator, he is unlikely to enforce these policies because of the complementary nature of U.S.-China trade. The U.S. is likely to increase tariffs only selectively, in products where there are large deficits.
Historically, the U.S. Republican Party has always had more pragmatic policies on China, resulting in positive developments in U.S.-China economic partnership. Mr. Trump’s aides have raised the possibility of the U.S. joining the AIIB (Asian Infrastructure Investment Bank). After Mr. Trump takes office, there will be a new platform for the growth of the U.S.-China economic partnership, driving growth in “One Belt One Road” and China Manufacturing.