Trump Return May Cost Bigger Stimulus By China To Compensate For Trade War Shocks: Report

The result of the US presidential election will have a significant impact on Chinese government trade policies. A recent report by Barclays says if Donald Trump returns to power, it could escalate tensions between the US and China into a full-scale trade war.

In the event of a Trump presidency, the report states, "In the event of a Trump presidency, which could lead to a full-blown trade war, we think the top leaders will contemplate a larger stimulus package."

The report mentions that China is already preparing for this possibility and is expected to announce a significant economic stimulus package during the National People's Congress (NPC) Standing Committee meeting, scheduled to conclude on November 8.

The report highlights that Chinese leaders are likely to monitor the US election results closely, given the potential implications for trade policies, especially tariffs.

The report further noted that following the NPC meeting, upcoming Chinese government events, including the December Central Economic Work Conference and the NPC in March, could bring additional economic measures.

The NPC meeting this week is expected to reveal details about the size and structure of the fiscal package, with analysts closely watching how the Chinese government plans to fund the stimulus.

The report suggested that the mix between special treasury bonds and local government bonds will play a key role in gauging the package's impact on both the economy and financial markets.

The report highlighted the base case for the stimulus package includes a large-scale debt swap program of CNY6 trillion over three years, partially funded by special treasury bonds.

It said, "Our base case is for the government to introduce, a CNY6trn debt swap program over three years, partly financed by special treasury bond".

Additionally, the package could offer around CNY2 trillion in further fiscal support, with CNY1 trillion dedicated to bank capitalization through special treasury bonds, and up to CNY1 trillion to boost consumption.

Looking ahead, the report added that China may also adjust its economic targets to accommodate these developments, potentially lowering its 2025 GDP growth target to 4.5 per cent and raising its budget deficit ceiling from the current 3 per cent to 4 per cent.

As both nations await the election outcome, the economic strategies unveiled by China could provide a roadmap for how it intends to counteract potential U.S. trade pressures. (ANI)