WSJ What’s News - How Will China Deal With Trump 2.0?

Episode Date: January 17, 2025

A.M. Edition for Jan. 17. A barrage of stimulus helps China hit its growth target, but with Donald Trump about to take office, the economic outlook is darkening. The WSJ’s Jason Douglas explains how Beijing is preparing to deal with higher U.S. tariffs—and how a trade war could play out. Plus, Donald Trump tells lawmakers he’s ready to bypass Congress to implement his border and trade policies. And the Gaza cease-fire deal appears to get back on track. Kate Bullivant hosts. Sign up for the WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Air Transat presents two friends traveling in Europe for the first time and feeling some pretty big emotions. This coffee is so good! How do they make it so rich and tasty? Those paintings we saw today weren't prints. They were the actual paintings. I have never seen tomatoes like this. How are they so red? With flight deals starting at just $589, it's time for you to see what Europe has to offer. Don't worry, you can handle it. Visit airtransat.com for details, conditions apply. Air Transat. Travel moves us. Donald Trump signals he's prepared to bypass Congress

to pursue his top priorities. Plus, China said it hit its growth target for 2024. But how will its economy fare if Trump raises tariffs? And what could be the ripple effects of a trade war? So if China doubles down on what it's doing now and tries to keep shoving more goods into the rest of the world, then what we're likely to see is a much broader trade war.

And the Gaza ceasefire deal appears to be back on track. It's Friday, January 17th. I'm Kate Bulevant for The Wall Street Journal And the Gaza ceasefire deal appears to be back on track. It's Friday January 17th. I'm Kate Bulevant for the Wall Street Journal filling in for Luke Vargas. And here is the AM edition of What's News, the top headlines and business stories moving your world today. Israeli Prime Minister Benjamin Netanyahu says negotiators have reached an agreement on a Gaza ceasefire, ending two days of debate that underscored the fragility of the pact. The deal now goes to Israel's security cabinet for approval before being submitted to a vote

by the full cabinet. Back in Washington, Donald Trump has told Senate Republicans he won't wait on them to begin implementing tariffs and overhauling the immigration system, his two biggest policy pledges. That's according to people present at a meeting earlier this month in which Trump told lawmakers that he has already drafted roughly 100 executive orders and that he's prepared to push the limits of his authority to tackle those issues. The executive branch has expansive authority over immigration enforcement and Congress has delegated more authority on tariffs to the president over time.

Still, divisions within Trump's inner circle could hamper his most ambitious proposals and since the election Trump has softened some of his campaign rhetoric around mass deportations. A spokeswoman for the Trump transition didn't respond to a request for comment. Meanwhile, we report that the newly created Department of Government Efficiency, led by Trump confidant Elon Musk, has already started to look for ways to cut spending, shrink the federal workforce and restructure agencies. According to people familiar with the matter, Doge officials have focused on how those goals can be met through executive action rather than legislation.

According to a person familiar with the plans, the agency is likely to have an office on the White House campus, positioning Musk a short walk from the Oval Office. A representative for the Trump transition team didn't respond to requests for comment. WSJ columnist Tim Higgins has been keeping a close eye on the billionaire's efforts to help the government slash costs. Elon has already talked about some of the ways in which he is kind of thinking about changes that he'd like to see. He has talked about his personal experiences with certain regulations, whether it's environmental, getting in the way of what he sees as innovation

and his ability to launch rockets with SpaceX. So it would seem that those personal experiences might help guide him. He has also talked about allocating resources within the government. He has talked about how he's kind of in agreement with those folks out there who don't understand why so many resources are given to the IRS for audits and that sort of thing, whereas they feel like more resources should be put towards securing the US border with Mexico. And for more on this, check out today's tech news briefing podcast. They'll be tracking Musk's first 100 days in the Trump presidency with regular updates from Tim. A SpaceX spacecraft has exploded during a test flight, temporarily disrupting air travel in the

Caribbean as pieces of debris were seen streaking across the sky. The uncrewed Starship rocket that launched yesterday evening was SpaceX's seventh mission of a powerful but still experimental vehicle. It consists of a booster that propels a spacecraft stacked on top. According to a live stream of the mission provided by SpaceX, the spacecraft separated from the booster shortly after liftoff as as designed, but soon exploded. SpaceX chief executive Elon Musk said initial data pointed to a leak in part of the ship. Coming up, with Trump's inauguration just days away, we take a look at how China is bracing for a trade war. That story after the break.

war. That story after the break. Beijing has managed to hit its 5% growth target for 2024, despite multiplying problems that prompted a stimulus injection. That's according to GDP figures released overnight, which showed growth accelerating to 5.4% in the fourth quarter of the year. But many economists remain sceptical about the sustainability of such an upturn, while Donald Trump's impending return to the White House is likely to add to the many headwinds that China's economy faces. So for a look at how all of that might play out, I'm joined by Journal Asia economics reporter Jason Douglas. Jason, you write that China coped well under Trump 1.0. What's the difference this time around? The biggest difference is the diverging economic fortunes, if you like, of the US and China. So the US has been growing very strongly since the pandemic ended, but China has been much weaker.

It's been weakened by this enormous property bust that's sapping consumer spending and straining government finances. And this time around, it finds itself much more dependent on manufacturing and exports than it has been for a while. And that means it's much more at risk in a new trade war. Can we quantify the expected hit to China's economy from Trump tariffs if he does go to 60% as expected? There's a pretty big range of estimates. And it all depends on how far China goes to offset the tariffs with domestic stimulus, how far it lets the exchange rate fall, whether or not other countries retaliate.

So there are lots of moving parts. But anyway, most economists put the hit to somewhere in the region of maybe 1.5 to 2.5 percentage points off GDP growth. So that would be a pretty substantial hit for China for sure. So how is China preparing for this kind of escalation? I mean, they have the option of retaliating with tariffs of their own, right? They do. And that's certainly what they did in the first trade war. They raised tariffs and US imports kind of tit for tat, if you like. This time around, they have a much broader array of countermeasures that they are going

to deploy. Probably the most potent is their stranglehold on global supply of critical minerals and on the kind of machinery that you need to get critical minerals out of the ground. China has shown that it's willing to restrict the supply of these, which could be quite painful at least for American companies. The other tool that they have in their belt, if you like, is they can make life very difficult for US companies operating in China. So they have all these different ways that they can hit back. I think it's fair to say, like, the macro impact of those kind of things is probably going to be less on the US than tariffs will be on China. But nonetheless,

it can be the very least annoying for the US and at most pretty painful for some corners of its economy. So how is China bracing for impact? The big thing it's been adding stimulus to is domestic economy. So it's been cutting interest rates and trying to shore up growth back home. And the big question mark for China this year is whether the authorities in Beijing can or will do enough to really fire up domestic spending and in particular consumer spending to offset these headwinds that are going to come from tariffs.

And do economists think Xi is prepared to do that? The balance of opinion is probably not. I mean, most economists following China expect some sort of effort to lift spending in the year ahead in the short term, but maybe not so much on the deep reforms that would be needed to drive a really durable change in its economic structure to really give consumption a boost. That would be things that would reduce Chinese households' propensity to save. So bigger forms of healthcare, to education, to pensions, things that would really build out what is in fact a very threadbare social safety net.

So a tougher terrain for China this time around. But from the experts you spoke to, how successful do they think that Trump's tariffs will actually be in reducing the US's reliance on Chinese goods? Yeah, this is a tricky one. I mean, the US still imports a lot from China, although China's share of everything the US imports has gone down since the first trade war because of the tariffs. But the US now imports a lot more stuff from places like Mexico, from Vietnam, and of course the suspicion is that a lot of these goods are really Chinese goods in disguise, or at

the very least they're goods that are made with lots of Chinese parts, probably by Chinese companies. So the dependence is still very much there. Economists would say tariffs will probably do something to encourage more domestic production, but it'll just take decades to really untangle these two economies. That is indeed the goal of the second Trump administration. And finally, if tariffs deliver a big shock to China's economy and given its outsized significance on the global stage, could we see ripple effects across the

rest of the world? Certainly, and it could happen kind of in either direction, right? So if China really juices domestic spending to offset tariffs, then you would expect it to suck in a lot more imports of commodities and food and energy and so on, which would help a lot of countries. The flip side is if it doubles down on what it's doing now and tries to keep shoving more goods into the rest of the world, then what we're likely to see is a much broader trade war because we have a little bit of evidence from rising tariffs elsewhere and so on that other countries probably won't tolerate another big export push by China and will try to shield their domestic industries from Chinese competition with similar tariffs to what the US is proposing.

That was Journal Asia economics reporter Jason Douglas. Jason, thanks so much for your time. My pleasure. Thank you, Kate. And that's it for What's News for this Friday morning. Today's show was produced by Daniel Bach with supervising producer Christina Rorca. And I'm Kate Bulevant for The Wall Street Journal filling in for Luke Vargas. We'll be back tonight with a new show. Until then, have a great weekend and thanks for listening.