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A man rides a scooter past a giant screen showing news footage of Chinese President Xi Jinping attending a Chinese Communist Party politburo meeting, in Beijing, China December 9, 2024.
China’s vows to pump up its economy — with one eye on Trump’s tariffs
China’s Politburo — the top leadership cabinet — said Monday it would take “more proactive” fiscal measures and loosen up its monetary policy in 2025 as it aims to boost domestic consumption. The body met ahead of the annual Central Economic Work Conference, reportedly scheduled for Wednesday and Thursday, at which the country’s economic policy priorities for the coming year are laid out — and one of those priorities is gearing up for Donald Trump.
The background: China has experienced over three years of economic turmoil that originated in the all-important property market, where most Chinese households keep their long-term savings. Defaults and halted constructions from major developers dovetailed with a local government debt crunch to place tremendous headwinds against economic growth, leading to stock market turbulence and high youth unemployment.
Beijing has attempted to goose growth with monetary easing (aka lowering central bank interest rates) since September and unveiled a $1.4 trillion debt package aimed at stabilizing growth in November. But kickstarting the economic engine is proving difficult.
Watch out for Trump: The incoming US president is promising to hike tariffs on Chinese goods, having mentioned figures as high as 60% on the campaign trail. While tariffs are a laborious way to cut off one’s nose to spite one’s face and are likely to hurt the US economy, Beijing’s exports are one of the few sectors doing well right now. Getting to a stable footing before the trade barriers go up must be a high priority.
China isn’t just playing defense though: US chip-making giant NVIDIA saw its stock slide 3% on Monday after news broke that Beijing was opening an antitrust investigation. NVIDIA has been a darling of investors during the AI boom, with shares nearly tripling in value this year — but this shot across the bows is a sign of what could come.Mexican President Claudia Sheinbaum speaks after reading a letter to be sent to U.S. President-elect Donald Trump, warning that tariffs would cause inflation and job losses in both countries, at National Palace in Mexico City, Mexico, November 26, 2024.
The economic fallout of Trump’s tariff threats
Last night, Donald Trump made clear that no country will be immune to his tariff agenda. In a post on Truth Social, he accused Canada and Mexico – America’s top two trading partners – of not doing enough to curb the flow of fentanyl and illegal immigration and threatened them each with 25% tariff hikes. He also vowed to impose an additional 10% tariff on China for its role in producing the precursor chemicals for fentanyl.
The announcement caused Mexico’s peso to slide, suffering a 1.7% drop against the US dollar, and for Canada’s dollar to hit a four-year low, dropping 0.7%.
In a press conference on Tuesday, President Claudia Sheinbaum responded to Trump’s threat by arguing that tariffs would not solve the migration or drug crisis and would come at the cost of the auto industry – noting that cars from America’s biggest auto manufacturers are some of Mexico’s principal exports to the US. Auto stocks fell in response to the post – with General Motors down as much as 7% on Tuesday. Canadian Prime Minister Justin Trudeau hopped on the phone with Trump, seizing the moment to show voters he knows how to handle the incoming US president.
Meanwhile, Chinese stocks remained relatively solid – dropping just 0.2% – likely because the 10% tariff was lower than many investors’ worst expectations.
The US economy was also unphased by the news, with the Nasdaq and S&P 500 both making gains in response to Trump appointing hedge fund manager Scott Bessent as treasury secretary. Bessent is expected to be a steward of the stock market and a moderator of Trump’s wildest economic ambitions.
How likely is Trump to follow through? Eurasia Group US analyst Noah Daponte-Smith says it’s hard to predict. “What we do know,” he says, “is that Trump is serious about the tariffs and has the legal means to implement them if he wants.” Even if Trump doesn’t implement them on day one, “the threat of implementation will hang over the USMCA relationship for the entire Trump term if these underlying grievances are not addressed in the manner Trump desires.”
The gap between Americans' perception of the economy and reality
As the candidates make their final arguments in the 2024 US Presidential Election, the economy is front and center on the minds of voters. Despite all signs indicating stable and above-trend growth in the US, many Americans feel uncertain about how well the economy is doing, said Robert Kahn, Managing Director of Global Macro-Geoeconomics at Eurasia Group. He discussed the gap in US economic perception versus reality with GZERO’s Tony Maciulis at the IMF and World Bank Annual Meetings in Washington, DC, in a Global Stage interview. Kahn noted that heightened political polarization has skewed views of economic performance while lingering geopolitical shocks and high prices add to concerns. Kahn emphasized that there is an element of worry around the “legacy of the pandemic…that Vice President Harris is just really struggling to overcome” even though underlying data proves otherwise. The two also discussed former President Trump's accusations that the Federal Reserve is "playing politics" with interest rates and what the impact would be globally if Trump were, as president, to assert a heavier hand in decision-making at the central bank.
Global economy at risk if Middle East conflict expands, says World Bank's Ayhan Kose
While the global economy shows signs of growth and decreasing inflation, the near future involves risks, including the escalation in the Middle East impacting oil prices, strained China-US relations, and an increasingly challenging tariff and trade environment, said Ayhan Kose, World Bank Deputy Chief Economist. He discussed the geopolitical tensions influencing the global economy with GZERO's Tony Maciulis at the IMF and World Bank Annual Meetings in Washington, DC, in a GZERO Global Stage interview. Kose also addressed the other major economic gathering happening this week: Russia’s 16th annual BRICS Summit in Kazan, Russia, largely seen as a counterweight to Western-led order. While acknowledging the widening economic and geopolitical divide, Kose emphasized the need for international cooperation. He expressed concern about “the increase in the number of protectionist measures and consequences of that for global trade.” Kose also emphasized the "urgent and important" need for World Bank member nations to continue to support development in poorer countries, a more difficult conversation today as many face their own economic headwinds and the world awaits the results of the 2024 US presidential election.
Can Europe become a global superpower?
It’s a critical time for Europe. In the recent European Union elections, voters unhappy with the establishment status quo delivered historic gains for far-right, nationalist parties in countries like France and Germany. But a fractured EU Parliament makes it harder for the ruling centrist coalition to deliver on key priorities like immigration reform and the Green deal. Can the 27 member states come together to address big challenges?
On GZERO World with Ian Bremmer, European Parliament President Roberta Metsola discusses Europe’s future amid an ongoing migrant crisis, the war in Ukraine, and an economic slowdown. The EU is the world’s largest trading bloc and a regulatory superpower, but Metsola says Europe needs to strengthen its strategic autonomy to avoid getting squeezed by the US and China. Part of that vision includes Ukraine joining the European Union, which Metsola tells Bremmer is unequivocably “win-win” for both sides. But finding consensus among so many countries, cultures, and political parties in the EU government can be a major challenge.
“We’re not yet coherent, I think we've weakened ourselves by being a cacophony of what we think we want,” Metsola says, "We still have not, as a European Union, become better as a whole than individual countries.“
GZERO World with Ian Bremmer, the award-winning weekly global affairs series, airs nationwide on US public television stations (check local listings).
New digital episodes of GZERO World are released every Monday on YouTube. Don't miss an episode: subscribe to GZERO's YouTube channel and turn on notifications (🔔).
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Envisioning Europe's path forward with European Parliament President Roberta Metsola
The European Union is at a crossroads. Big issues, like Russia’s Ukraine invasion, a migrant crisis, and an economic slowdown coming out of the Covid pandemic have been major tests of the bloc’s resilience and unity. There’s a lot at stake. Can the EU’s 27 member states hold it all together? On this week’s episode of the GZERO World Podcast, Ian Bremmer sits down with the woman at the heart of Europe’s government: European Parliament President Roberta Metsola. They discuss Europe’s path forward, its role on the world stage, and how a fragmented EU avoids being squeezed by the US and China. Metsola admits that, on China policy in particular, the bloc’s “biggest problem is we have not been coherent" and says a unified EU strategy toward China has (so far) been “absent” from policy discussions. So where does Europe go from here? In a wide-ranging discussion, Bremmer and Metsola dig into the EU’s push for strategic autonomy, rising far-right nationalism in recent EU elections, and whether Ukraine will be able to join the bloc anytime soon, even as Russia’s war rages on.
Subscribe to the GZERO World Podcast on Apple Podcasts, Spotify, Stitcher, or your preferred podcast platform, to receive new episodes as soon as they're published.FILE PHOTO: Federal Reserve Chair Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., September 18, 2024.
Interest rate cuts are doing their thing. Will more come soon?
Recent rate cuts by the Federal Reserve and the Bank of Canada, along with lower inflation rates in both countries, are spurring … talk of more cuts. This includes a potential “jumbo” cut this month in Canada.
A former deputy governor of Canada’s central bank is arguing for a half-point cut when the bank meets in late October, and he’s betting on it. Paul Beaudry argues that the economic stimulus would spur the Canadian economy – by boosting consumer and business spending.
Statistics Canada reports that the country’s inflation rate was 2% in August while the US Bureau of Labor Statistics pegged the rate south of the border at 2.5%.
In September, the Fed cut rates by 50 basis points, its first trim in four years. That had effects on both sides of the border, given how close the US and Canadian economies are linked. Some Canadian mortgage rates on offer ticked down after the cut, dipping below 4%. So too did their US counterparts, triggering an immediate jump in real estate hunting and refinancing.
Experts believe the Fed will embrace more cuts in the coming months, aiming for a target of 4-4.25%, with even lower rates on the docket for 2025. The Fed and Bank of Canada will drive borrowing costs down and offer some relief to consumers and borrowers as both economies continue to level out.Kamala Harris and Donald Trump surrounded by the economy.
Kamala Harris and Donald Trump’s economic plans, compared
The economy is the top issue for voters in November’s presidential election, and the outcome of the election will alter the course of the US economy. That’s because former President Donald Trump and Vice President Kamala Harris are running on two distinct policy agendas that, if implemented, would significantly differ in their macroeconomic consequences.
Harris would largely represent a continuation of President Joe Biden’s center-left policies. Trump 2.0 would plot a different path, with higher tariffs, immigration restrictions, and tax cuts akin to his first-term policies but in a much more challenging economic environment.
Although the race for the White House is too close to call and will likely remain so until Election Day, what policies ultimately get enacted depends not just on the occupant of the Oval Office but on the makeup of Congress. Polls show that Republicans are heavy favorites to flip the Senate, while control of the House will probably go to the party that wins the White House.
The upshot: If Trump wins, he is likely to come into office with a unified Republican government and a clear path to implementing his key policies (many of which – especially on trade and immigration – could be enacted through executive action, anyway). But if Harris wins, she will likely preside over a divided government with a Republican Senate that would force her to water down much of her agenda.
Let’s dive into how Trump and Harris might govern under these two most likely scenarios and compare the economic implications.
Probably the most disruptive leg of the Trump 2.0 agenda is its trade policy. Trump has promised to levy a dramatic 60% tariff on China and a 10% tariff on all imports. This is in addition to the tariffs he’d likely impose on key allied trading partners in Europe, Southeast Asia, and Latin America, especially those with large bilateral trade surpluses with the US. Tariffs are a tax on foreign-made goods: They raise prices and costs for American consumers and businesses.
While it would probably under-deliver on the headline 60% number, the Trump administration is determined to accelerate the pace of economic decoupling with China and would likely double the average tariff rate on all Chinese imports, with larger increases on intermediate goods (like semiconductors and auto parts) critical for US and global supply chains. China could either reciprocate Trump’s escalation, leading to a sharp worsening of the relationship and a new Cold War that would raise the risk of direct military confrontation. Or it could decide that its weakening economy demands a more conciliatory response, swallow the tariffs, and offer Trump a “grand bargain” that he could sell at home as a win. Either way, with baseline protectionism already higher than in 2017, Trump’s tariff increases would add to US inflation, reduce US GDP growth, and potentially disrupt supply chains. These impacts would be magnified by any in-kind retaliation from China or other targeted trading partners.
By contrast, Harris’ trade policy would extend the status quo under Biden. Tariffs would not come down from current levels, and they may even be expanded incrementally on specific sectors of concern as part of the “small yard, high fence” approach to de-risking from and tech competition with China. But by and large, Harris would lean more heavily on targeted export controls and domestic industrial policy than on tariff hikes. The US-China relationship would stay on the current path of “managed decline.”
A key campaign issue where Trump’s agenda would also have drastic and underrated economic implications is immigration. The former president has vowed to take executive actions to meaningfully crack down on migration flows at the southern border, restrict economic immigration, and deport millions of immigrants already in the US workforce. While the actual policy changes are likely to be smaller and more gradual than threatened, Trump 2.0 would deliver a material negative shock to the US labor supply that would increase the price level, fuel inflation, reduce GDP growth, depress the US economy’s productive capacity, and widen the federal deficit.
For her part, Harris would stick to the more restrictive stance Biden embraced this year barring migrants who cross the southern border illegally from applying for asylum. She would also continue her work with Latin American countries to reduce migration by addressing its “root causes” in the region, albeit mostly without success. Harris would face slim odds of passing comprehensive immigration reform through a Republican Senate. But if illegal immigration continues its current pace of decline and the issue becomes less salient over time, she could have the political space to loosen some restrictions, which would provide a disinflationary impulse and a boost for the US economy.
Where the differences between the two candidates are less stark than they seem is energy policy. Trump has a clear preference for maximizing domestic fossil fuel production, while Harris once opposed fracking and would continue implementation of the Inflation Reduction Act to spur the growth of renewables. A second Trump term would streamline permitting regulation, expand offshore and Arctic federal lease sales, speed up approval of new LNG export facilities, and loosen climate and emissions regulations. But with the Biden administration already supportive of the oil and gas industry, domestic output at record levels, and production determined as much by market conditions as by government policy, there’s only so much that Trump’s “drill, baby, drill” approach could realistically achieve. At the same time, while Trump 2.0 would curtail some of the renewable subsidies in the IRA such as the EV tax credit, a wholesale reversal of Biden’s signature legislation is unlikely because it was designed to generate vested interests in many red states and within industry.
Similarly, while a Harris administration would stick to the Democratic Party consensus on advancing the green energy transition through existing IRA subsidies and industrial policy, it wouldn’t take any meaningful actions to constrain domestic energy production in a way that could be seen as leading to higher gas prices at the pump. This is aligned with President Biden’s “all of the above” approach to energy sourcing to ensure the green transition is economically and, therefore, politically sustainable – the same approach that has been partly responsible for record-high domestic energy production levels.
Finally, we have fiscal policy, where neither candidate has a plan to fix the debt. Despite Trump and Harris offering radically different visions for taxation and spending, deficits are set to increase over the next decade regardless of who wins the election. Indeed, with general government debt at over 120% of GDP, federal budget deficits at 6+% of GDP at a time of peace and relative prosperity, and no prospect of entitlement reform until the 2030s, the mythical DC deficit hawk looks all but extinct.
Harris and Trump are both likely to extend the 2017 Trump tax cuts when the Tax Cuts and Jobs Act expires in December 2025. The main difference is that Trump with a unified government would substantially increase overall spending – particularly defense spending – without offsetting tax hikes, leading the deficit to balloon (possibly to 8-10%) over the next 10 years and putting the US on an even more unsustainable fiscal trajectory than it is already on. Harris, on the other hand, would also extend most of the expiring tax cuts but offset some with higher top marginal rates on high-income individuals. A Republican-controlled Senate would limit the scope for both tax hikes and non-defense spending increases, meaning her administration would increase deficits and debt less than Trump 2.0 would by 2035. Higher interest rates under Trump with a unified government would further widen the gap between the two scenarios.
What does it all add up to? Putting together the effects of higher tariffs, immigration restrictions, and wider deficits, a second Trump presidency is likely to result in higher inflation and lower GDP than a Harris administration. The combination of Trump’s stagflationary policies might prompt the Federal Reserve to end its rate-cutting cycle earlier, leading to higher-for-longer interest rates and slowing the US economy. Trump might then try to jawbone the Fed into lowering rates and weakening the dollar, undermining its independence and causing higher risk premia.
Some of you may dismiss this as alarmist or, worse, partisan. After all, there was plenty of handwringing from experts before Trump’s first term, too, and the US economy ended up doing pretty well until the COVID-19 pandemic hit. (Even if that performance was arguably an extension of the long and robust economic expansion that preceded it, juiced by Trump’s pro-cyclical, deficit-financed corporate tax cuts, and enabled by the Fed’s easy monetary policy.)
But the initial conditions really are very different now than in 2017. Growth is slowing. Interest rates are higher. Higher deficits and debt reduce fiscal space for further tax cuts. Inflation has only just normalized after several years above target. Domestic energy production is at record levels. And a lot of the policy low-hanging fruits that markets cheered in Trump 1.0 have already been picked.
Trump and Harris offer distinct visions for the economy. There are plenty of legitimate – even compelling – reasons for voters to prefer what the former president is selling. But anyone who expects Trump to snap his fingers and deliver 2019-level prices will be sorely disappointed – unless, of course, his policies cause a massive deflationary recession. Be careful what you wish for.