China Under Fire: 'Black Swan' Becomes Realty

Donald Trump winning the 2016 U.S presidential election was considered a "black swan" scenario: something that represents “a low probability but high-impact event,” Daiwa Capital Markets’ Kevin Lai said in a report. He added that this has serious implications for China.

China’s Great Wall

Trump believes that while the United States has fully opened its markets to China, the Asian nation has not reciprocated, analyst Lai pointed out. China has a “Great Wall of Protectionism” that uses barriers — both tariff and non-tariff — to keep U.S. companies out of the country and “tilt the playing field in its favour.”

What Now For China?

Lai enumerated three key factors likely to influence China under the Trump presidency:

1. Trump’s stance on China has been “provocative, hawkish and confrontational.”
2. The election results indicate a rise in anti-China sentiment in the United States.
3. “This is a potential paradigm shift that China may find hard to navigate.”

The analyst further mentioned the following possible outcomes for China:

• China may be designated as a currency manipulator: Trump believes the yuan is 15–40 percent undervalued.
• Tariffs could be Trump’s main policy tool: The United States may levy a 45 percent tariff on Chinese goods. High tariffs would be detrimental for China as well as for multinational companies (MNCs) operating in China, which would likely relocate to other countries. Lai highlighted that a 45 percent tariff on China would lead to a $420 billion, or 87 percent, decline in exports from China to the United States per annum.

"Under Trump’s presidency, China would be a much bigger target over currency manipulation, loss of U.S. jobs and intellectual property-rights theft. China will have to manage a new risk, alongside a long list of economic problems domestically," the analyst commented.