China Merchants warns Trump presidency ‘could lead to period of increased uncertainty for China’
But investment banking arm of giant state-owned conglomerate still thinks Clinton will win
A new report from China Merchants Securities, the investment banking arm of giant state-owned conglomerate China Merchants Group, has claimed a Donald Trump presidency could lead to a period of increased uncertainty for China.
But it adds that despite Trump’s at-times bombastic rhetoric towards Beijing, the concerns of many observers over the candidate’s volatility are overstated, insisting the US government’s normal checks and balances would mean that the existing strong interdependence between China and the US will remain a solid driving force behind bilateral ties.
China Merchants’ analysts, led by Lynn Song, conclude the possibility of Trump triumphing in November’s US presidential election cannot be dismissed, however, they still see a Hillary Clinton victory as more likely.
As in previous US elections, Song said the promises and declarations made on the campaign trail by both sides could also vanish once an elected president takes office, whether by personal choice, by political obstruction, or a shift in priorities.
But it’s a Trump presidency which takes up the lion’s share of its analysis.
“In the case of Donald Trump, the gap [between promises and actual policies] may prove to be even larger, as his declared goals on the campaign trail have been highly controversial,” said Song.
“Our view is that the most noticeable impact of a Trump presidency would be on the US’ tax and trade policies.”
On the former, he thinks Trump’s proposed plans to cut personal and corporate tax may well lead to increases in personal consumption and improved corporate profits. But the benefits of those would be limited, because the planned cuts mainly focus on higher earners.
Song said Trump’s tax plan could lead to a $435 billion reduction in federal government revenue, around 20 per cent of US’s fiscal income in 2015.
The candidate’s trade policies, however, are viewed as far less encouraging for China and globally.
“They could significantly damage US growth prospects via trade wars, and potentially undoing years of progress in trade deal negotiation,” Song said.
“Many heralded Brexit as a turning point, marking the end of globalisation and a Trump vote in November would add credence to that argument,” he added.
In a Trump administration, the report is sure deregulation is also likely to be a prominent theme.
His campaign, it said, has blamed “over-regulation” as costing the US economy US$ 2 trillion per year, but Song described that as a “bold claim”, given the US total nominal GDP stands at US$ 18.6 trillion.
When it comes to China, however, Song said opinion is largely that Clinton would be better at maintaining business links with the US.
There are those, he says, that argue Trump would be better, but most of the arguments for that are based on concerns over Clinton’s traditionally tough stance towards China.
There are many, too, who accept her claim that she is a pragmatist who favours maintaining amicable ties with China.
Regardless of either side’s rhetoric, Song’s China Merchants team is confident the US government systems remain in place to ensure “long term, the strong interdependence between China and the US will remain the driving force behind bilateral ties” and be sufficient to prevent doomsday scenarios from unfolding.
“While Trump’s potential tax cuts could create significant long-term debt concerns,
they should provide a stimulus effect over the short term and may be supportive to markets,” Song added.