RPT-BREAKINGVIEWS-China can steal a march on US tariff uncertainties

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Chan Ka Sing

HONG KONG, Feb 14 (Reuters Breakingviews) - One of the biggest problems China's leaders currently face is that they cannot plan for the tariff policies of their most important trading partner. Rather than waiting for the dust to settle on its fraught $600 billion relationship with the United States, rolling out bold stimulus now to tackle domestic challenges increasingly looks like Beijing’s best course.

U.S. President Donald Trump's executive order on Thursday tasking his administration with devising reciprocal tariffs on countries taxing U.S. imports confirms two things. First, extreme uncertainty about global trade terms will drag out for a long time: the earliest implementation date appears at least a month and a half away. Second, that recent efforts by India, the European Union and others to pre-emptively lower their own import tariffs may not offer them enough protection.

The case for China waiting to see what Trump will do before decisively acting to fire up its $18 trillion economy, therefore, no longer has merit. A broad trade war looms, and China will remain top of the White House's hit list. Despite threatening many countries, the only tariffs Trump's new administration has actually put into effect is the 10% levy on imports from the People's Republic. That's manageable, but the figure could ramp up to a punitive level.

Building a strong domestic economy is Beijing's surest defence. China met its official 5% growth target last year, but only after unleashing a slew of countercyclical measures in the second half. Achieving a similar headline pace this year will require bigger policy inputs if exports, which account for about 20% of Chinese GDP, stutter.

Fulfilling President Xi Jinping's pledge to guard against "external shocks" requires shifting into a higher stimulus gear. Consumer confidence is at a record low, and home prices are falling at their fastest pace in nine years. These two enormous problems explain why China's youth are worrying about their future: marriage registrations fell a record 20.5% to just 6.1 million last year.

The biggest uncertainty Beijing can remove for itself is the size of the stimulus it is prepared to roll out. Chinese regulators have pledged 12 trillion yuan ($1.65 trillion) of fiscal measures over the next few years. But most of the announcements in recent months aim to repair municipal balance sheets, rather than directly injecting money into the economy.

While it is still possible that Trump and Xi may agree a grand bargain combining trade issues with geopolitical ones, such as peace in Ukraine, the time for holding back on domestic stimulus has passed. A strong China will be Xi's biggest support in negotiations with Washington, whenever they take place.

CONTEXT NEWS

U.S. President Donald Trump signed a memo on February 13 tasking his economics team with devising plans for reciprocal tariffs on every country taxing U.S. imports, kicking off weeks or months of investigations and responses.

Howard Lutnick, Trump's pick for Commerce secretary, said the administration would address each affected country one by one and said studies on the issue would be completed by April 1.

China will guard against “external shocks” and promote sustained economic recovery in 2025, while suggestions for the 15th Five-Year Plan, running from 2026 to 2030, will be formulated this year, Chinese President Xi Jinping told a Spring Festival gathering of 2,000 senior officials on January 27.