Why Trump’s Tariff Threat Could Spark a Worldwide Miniboom

President-elect Donald Trump’s threat to impose tariffs worldwide could spark a miniboom for Chinese manufacturers – at least in the short term. 

Trump has outlined plans for a 10% universal tariff on all US imports, with a targeted 60% tariff on Chinese goods. These measures aim to address trade imbalances and protect US industries. However, they could spell disaster for exporters in Asia and in Europe, while pushing up prices in America. 

That’s in the long term. 

Right now, with Trump set to be sworn in on 20 January, factories globally may be working overtime to ship out as much as they can before any potential tariffs kick in, economists agree.

"There could be real front-loading of activity ahead of the enacting of tariffs," Joe Lupton, a senior global economist at JPMorgan, told the bank’s Weekender podcast on Friday.

Zichun Huang, a China economist at London-based economic analysis firm Capital Economics, wrote that Trump 2.0 could create short-term boost for Chinese exports as US importers do their buying ahead of any tariff. 

During his first term in office, Trump hit Chinese goods with tariffs as high as 25%.

If Trump does go ahead with his punitive tariff plan, the implication is that Europe and elsewhere will be flooded with cut-price Chinese goods as manufacturers try to sell elsewhere. 

But there’s increased resistance to Chinese goods from Europe too, which recently increased tariffs on Chinese-built electric vehicles to as much as 45% 

“The problem right now is that large recipients of those goods including Europe and the US are increasingly reluctant to receive them," Katrina Ell, research director at Moody's Analytics, told the BBC.

Trump has made no secret of his love of tariffs, recently telling Bloomberg: “To me the most beautiful word in the dictionary is tariff.”

“You see these empty, old, beautiful steel mills and factories that are empty and falling down,” Trump said. “We’re going to bring the companies back. We’re going to lower taxes for companies that are going to make their products in the USA. And we’re going to protect those companies with strong tariffs.”

Long-term impact

For China, the impact of a 60% tariff would be severe. The world's second-largest economy faces a projected GDP loss of 0.68% if Trump's tariffs are implemented. This comes at a time when China's economy is already grappling with challenges in its property sector and sluggish consumer spending.

European economies, while less affected overall, would still face substantial challenges. The EU exported €502.3bn (£415bn) in goods to the US in 2023, making America its single-largest export market, accounting for one fifth of all goods exported. 

Germany, Europe's largest economy, would stand to lose the most. Its GDP could drop by 0.23% – more than twice the projected decline for the EU as a whole. The country's automotive industry, a cornerstone of its economy, would be particularly vulnerable.

Few industries are more exposed than Germany’s carmakers: the share prices of Volkswagen, BMW, Mercedes-Benz and Porsche immediately dropped by 4-7% on the day of the US election, once it was clear President Trump would be the winner. 

Other EU member states would also feel the impact, albeit to varying degrees. 

France and Italy could see GDP reductions of 0.15% and 0.01% respectively. The UK, no longer part of the EU, might face a GDP decline of 0.14%.

By comparison, Brexit shrank the UK economy anywhere between 2% and 5%

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