Expect Senator and whisperer JD Vance to make trade wars great again with China.

William Pesek writes for Asia Times…

Trump’s JD Vance problem is now China’s, too

Raining on Third Plenum, VP choice could signal 2d-term Trump might be more confrontational than transactional

Chinese leader Xi Jinping can’t be happy his Third Plenum extravaganza is competing for headlines with events 11,000 kilometers from Beijing.

In Xi’s defense, it’s hard to compete for headlines with an assassination attempt against former US President Donald Trump half a world away. That, coming just over two weeks after Trump’s fiery debate with a cognitively challenged President Joe Biden.

But Trump’s choice of JD Vance as his running mate could signal an even bigger upstaging of Xi’s grandest economic plans going forward.

US elections rarely, if ever, turn on VP picks. And Vance, a first-term senator from Ohio, is more Trump “mini me” than a running mate who might expand the ticket’s appeal. Yet Vance is an important messaging pick – signaling a doubling down on Trumpism’s worst instincts.

Doubling down on Trumpism’s worst instincts

And it could be bad news for hopes that in a second term, Trump might be more transactional with China than confrontational.

Granted, this was always a long shot. But officials in Tokyo have been losing sleep over the prospect of Trump doing a “grand bargain” trade deal with Xi that leaves other top Asia economies looking in from the outside.

It’s anyone’s guess what having China-hawk Vance – who’s all-in on revoking Beijing’s “most-favored nation” status – whispering in the president’s ear might mean for a Trump 2.0 presidency. At the very least, it suggests Trump’s 60% tariff is just the start of broader efforts to Make Trade Wars Great Again.

The collateral damage could be unprecedented. UBS Group AG thinks this tax alone would cut China’s annual growth by more than half – lopping 2.5 percentage points off the gross domestic product of Asia’s biggest economy. China grew just 4.7% in the first quarter amid weak retail spending, property investment and new home sales.

That would slam China’s export engine, which has been a particularly potent growth driver this year. “Over time, potentially more exports through and production in other economies can help reduce the impact of higher US tariffs, but there is also a risk of other countries raising tariffs on imports from China as well,” says UBS economist Wang Tao.

That includes Europe, which has been angling to slow down China’s electric vehicle market. Biden, too, announced a 100% tax on China-made EVs. Trump, though, has telegraphed 100% or 200% tariffs on all imported cars.

Trump choosing Vance over the crowd of Republicans vying for VP hardly signals an appetite for negotiation. In an interview with Fox News on Tuesday, Vance called Xi’s economy the “biggest threat” to America.

Asked about Vance’s remarks, Chinese Foreign Ministry spokesman Lin Jian said Beijing “opposes US elections making an issue of China.”

In April, Vance argued Washington’s focus on Ukraine is a dangerous distraction. “To be strong enough to push back against the Chinese, we’ve got to focus there, and right now, we’re stretched too thin,” noted Vance, who’s long called for “broad-based tariffs” on Chinese goods.

Vance also advocates for bringing American manufacturing back home to reduce dependency on Beijing. Of course, Biden does too. But the Trump-Vance strategy will surely focus more on trying to drag jobs away from China than build economic muscle at home or rekindling US innovation.

Wu Xinbo, dean of the Institute of International Studies at Fudan University in Shanghai, tells the South China Morning Post that a Trump-Vance White House would be more involved in the Taiwan issue than Trump’s 2017-2021 administration.

“Vance would strengthen and increase tech restrictions and suppression of China,” Wu says. “He would pay great attention to the Taiwan issue because he believes that it is very important to the US economy, especially in terms of chips.”

Again, Trump would ostensibly call the shots. But the Vance wrinkle might make it even harder for Trump to distance himself from “Project 2025,” the 900-page playbook the Heritage Foundation devised for a second Trump term. Vance has close associations with the blueprint’s authors.

Though the plan’s effort to gut the government civil service gets the most attention, Project 2025 also advocates for the abolition of the Federal Reserve and reverting back to a gold standard for the US dollar. These are not ideas that comfort China’s foreign exchange reserve managers overseeing US$770 billion of US Treasury securities holdings.

The coming US election is proving to be quite a wildcard for the direction of Xi’s economy. In Beijing this week, Xi is convening with top Communist Party officials at the long-awaited Third Plenum. And the world is watching.

“Historically, this event has been pivotal in signaling key policy shifts and economic reforms in China,” notes economist Alicia Garcia-Herrero at Natixis. “This time around, market participants and China watchers have a very specific question that they hope the Third Plenum can answer: namely, whether enough growth-enhancing measures will be announced to revive the Chinese economy after years of underwhelming performance.”

Xi is calling on party leaders to show “unwavering faith and commitment” to his reform priorities championing “high-quality development.” Global economists are paying especially close attention to fiscal reforms, particularly around taxation and government spending and moves to reduce pressure on local governments by increasing their revenue sources.

Yet the effort comes at a moment when many international investment banks are cutting forecasts for China’s growth. And global markets are expressing disappointment that Beijing isn’t being more aggressive in its stimulus efforts.

“This,” Garcia-Herrero says, “has important consequences for the global economy, namely that China’s demand for foreign products will remain subdued and that Chinese companies will continue to rely on foreign markets to survive. This points to trade wars continuing to hit the headlines and perhaps moving beyond.”

All eyes are on the signals Team Xi sends to overseas investors. Kelvin Wong, analyst at currency broker Oanda, notes that “given that property policies are one of the key areas of focus in the meeting, the ongoing downturn remains the biggest threat to the economy given its significant wealth effect.”

Policymakers, Wong says, “are now walking on a tightrope to defuse the risk inherent in the property market due to the past decade of unproductive investment initiatives in property development to jumpstart economic growth but are also mindful that a further slowdown in real estate prices may lead to a deflationary spiral.”

If such a form of direct fiscal stimulus measures is announced, Wong concludes, “the China and Hong Kong stock markets may get a short-term sentiment boost.”

Yet many argue that expectations are quite low for policy fireworks out of Beijing this week.

This “four-day meeting of the country’s top governing body couldn’t come soon enough,” says Harry Murphy Cruise, an economist at Moody’s Analytics. But “while the case for reform is high, it’s unlikely to be a particularly exciting affair.”

The same can’t be said of risks emanating from Washington. The political polarization behind the Capitol Hill insurrection on Jan. 6, 2021 contributed to Fitch Ratings’ August 2023 move to revoke Washington’s AAA status. Even if Trump loses in November, there’s a zero percent chance he would concede graciously.

Moody’s Investors Service, the keeper of Washington’s only remaining AAA, points to these risks, as well as clashes over funding the government and raising the statutory debt ceiling, as threats to the US credit outlook.

Trump also harbors views sure to keep Asian policymakers very much on edge. As a New York businessman in decades past, Trump was a serial bankruptcy filer. On the campaign trail in 2016, Trump spooked Wall Street by hinting at a default on U.S. debt.

“I would borrow, knowing that if the economy crashed, you could make a deal,” Trump told CNBC when asked about his fiscal plans. “And if the economy was good, it was good. So therefore, you can’t lose.”

In 2020, the Washington Post reported that Trump officials, looking to punish China, mulled cancelling debt held by Beijing. With the US debt careening toward US$35 trillion, it’s not hard to understand how much of a catastrophe that would be.

Still, Trump’s reelection platform and choice of running mate signal that global investors probably haven’t seen anything yet regarding where Sino-US trade clashes might go.

Continue this analysis on Asia Times

READ MORE 2024 ELECTION NEWS AT: 21st CENTURY WIRE 2024 ELECTION FILES

ALSO JOIN OUR TELEGRAM CHANNEL

SUPPORT OUR INDEPENDENT MEDIA PLATFORM – BECOME A MEMBER @21WIRE.TV