Synopsis:

Credit Agricole expects the US to maintain a firm stance on China regardless of the election outcome, with heightened risks of volatile trade policies under a Trump administration. Potential tariff hikes could significantly impact China’s growth, prompting fiscal and monetary responses to cushion the effects.

Key Points:

• A tough US stance on China is expected regardless of the election winner, but a second Trump term could mean a more aggressive approach, particularly in trade policy.
• A 60% tariff hike on Chinese goods, potentially implemented by mid-2025 under Trump, could reduce China’s growth by 0.4 percentage points in 2025 and 0.8-1.0 percentage points in 2026.
• In response, China is likely to retaliate selectively while introducing substantial fiscal easing measures to mitigate the economic impact.
• The People’s Bank of China (PBoC) would likely manage the pace of CNY depreciation, aiming to control FX volatility amid heightened trade tensions.

Conclusion:

Credit Agricole anticipates that intensified US-China tensions, especially under a Trump victory, could weigh on China’s growth. China’s probable response includes targeted fiscal easing and managed CNY depreciation to soften trade-induced shocks, signaling a cautious yet prepared approach to potential US policy shifts.