Joe Biden’s declare that China” does not surpass” the US in economic terms has sparked clean debate among analysts everyday. Consider well-known continental analyst Justin Lin Yifu to be one of those who don’t agree with the retiring American president’s math.
Lin, a former World Bank chief economist, predicted 31 years ago that China’s gross domestic product ( GDP ) would top the US ‘ as early as 2030 and by 2035 at the latest. Speaking at the Asian Financial Forum in Hong Kong on January 13, Lin said that” under regular circumstances” his projection” should be unchanged”.
Limitations appear, of program. One is that Lin’s opinion on the removal of the GDP guard is primarily driven by changes in exchange rates as China allows the yuan to increase. Any shift by Xi Jinping’s Communist Party to degrade or change the renminbi for years to come was, in theory, limit China’s GDP trajectory.
There is nothing particularly “normal” about the massive industry war Donald Trump is threatening or the state of the US funds that Biden’s federal leaves behind. Between Washington’s US$ 36 trillion federal loan and the Trumpian trade conflicts to travel, there are plenty of reasons to worry about self-inflicted US winds, old and new, clouding the view.
Then there’s the inflation wave to occur if Trump makes good on his tax risks, including a 60 % cover taxes on all Foreign goods. In December, US client prices were rising at a 2.9 % price year on year.  ,
Wall Street benefited from the media, mainly because volatile food and energy products are removed from the baskets and prices are rising less quickly. Eugenio Aleman, chief analyst at Raymond James, says,” The Federal Reserve is OK with watching the title CPI go off periodically if that boost does not spill over into the main CPI, and this is what happened in December.”
However, Navy Federal Credit Union’s analyst Robert Frick adds that” core prices rising less than expected may foretell great news for prices in the months to come,” but” this was a particularly unpleasant report for consumers.” Frick notes that the” cost of necessities that hurt household budgets, especially for lower-income Americans, were among the top reasons inflation rose in December”.
If and when Trump layers on ever more taxes on imports, upward price pressures may intensify. Many economists worry that the Fed may start considering rate increases rather than rate increases as a result of Trump’s 60 % tariff on China and 25 % levies on Canada and Mexico.
According to Goldman Sachs strategist Dom Wilson,” US equities may now need clear relief from hawkish policy to make a sustained move higher.” ” We believe that equities may remain more fragile until we change the perception that the” Fed put” is now struck lower,” we think.
According to reports, Trump may be considering imposing tariffs more gradually to prevent unexpectedly raising inflation.
” If the focus is more on deregulation, tax cuts and potential sweeteners than changes to tariffs and immigration, then growth could be much stronger in 2025″, says Diane Swonk, chief economist of KPMG. ” Otherwise, risks are for higher inflation and weaker expansion”.
What’s more, many doubt Trump, considering the array of China hawks he’s gathered in his next cabinet, will have the discipline to forge a giant trade deal.
Trump’s” transactional approach won’t work everywhere, and in some cases, it will backfire”, warns Ian Bremmer, CEO of the Eurasia Group. China isn’t willing to make enough concessions to reach a grand bargain, especially with the absence of communication and management channels.
Bremmer notes that “early tariff hikes and mounting US provocations, at least as perceived by Beijing, in the coming months are likely to cause a , breakdown in US-China relations , this year”, not an economic partnership.
Here, Biden’s hubris about his economic legacy also seems unhelpful.
Arguably, Biden’s presidency did more to hobble key Chinese industries than Trump 1.0 did. Biden prioritized more nuanced and targeted curbs on mainland technology and limited China Inc’s access to crucial materials, while Trump relied on blunt-force tariffs.
Biden also made a slight switch in order to increase his domestic economic muscle. The Trump 1.0 era was about tripping , China , on the race course. Biden concentrated more on limbering up to compete with China both naturally and over the long term.
The CHIPS and Science Act , that Biden , signed into law , in 2022 deployed$ 300 billion to strengthen domestic research and development. Biden took other steps to incentivize innovation, raise America’s semiconductor capabilities and boost productivity.
A$ 1.7 trillion tax cut, whose main feature, did little to boost domestic capacity or competitiveness, was a significant change from the Trump era. Had Trump’s tax scheme innovation – or Biden’s policies been more ambitious – boosted innovation and productivity, US inflation might not be rising nearly 3 %.
The danger is that Trump will abandon all Biden-era policies intended to boost US domestic competitiveness and bows to partisan politics. He’s apt to resort to blanket tariffs that inflict the same degree of harm at home as they do in China in their place. And additional stimulus that fans inflation.
Trump’s economic toolbox doesn’t seem to have been updated since the mid-1980s. Along with taxes on Chinese goods, Trump’s signature “reform” was a return to Ronald Reagan’s” trickle-down economics”. Trump 1.0, as a result, did little to encourage chieftains to compete with China by improving the domestic US economy.
The most recent Trump tariffs didn’t boost US productivity, create new wave of business, or create new domestic economic muscle. Nor will the onslaught of Trump 2.0 taxes coming Asia’s way. The 60 % tax on Made in China goods could easily rise to 100 % or more. So might the 20 % blanket across-the-board tax Trump is mulling for all goods entering the US economy.
These policies may hurt middle-class US households, depressing GDP in the medium-to-long terms. Trump’s plans to start mass deportations of allegedly undocumented immigrants will further tighten the labor market and cause wage inflation to rise.
Another issue with Trump’s overconfidence and Biden’s hubris is that both men overlook how different China is now from it was when Trump was first elected in 2017. For one thing, its reliance on the American consumer has been greatly decreased. China’s steady efforts to recalibrate trade routes to Global South nations make China less vulnerable to Washington’s exploits.
For one, US officials may be ignoring China’s efforts to upend its economic game. Over the last decade, Xi’s inner circle has been implementing his” Made in China 2025″ strategy.
Though China faces daunting challenges, not least of which is a giant property crisis, Beijing has been investing big in semiconductors, electric vehicles,  , biotechnology, aviation, robotics, renewable energy, artificial intelligence and high-speed rail.
China’s success in EVs has  , Honda Motor and Nissan Motor , rushing to join forces. Few observers in Japan noticed that jarring realignment.
Additionally, there are the potential ways China might respond to Trump’s trade war. As former World Bank economist Lin said in Hong Kong this week:” We hope Trump will be reasonable, because to charge 60 % of tariff rates on China, or 25 % of tariffs on other countries, I don’t think that is good for the US, certainly, that’s not good for the world ]either ]”.
Lin comes to the conclusion that” we have no control over the trade policies from the US. But if the US is unreasonable, we should be reasonable. And if we maintain togetherness, I think we will be able to weather through any challenges”.
But then, China could slap across-the-board taxes on US companies most on the frontlines of Trump 2.0’s decoupling ambitions, including Amazon and Walmart. For instance, Xi could tax, block business transactions or even seize the assets of Apple, Microsoft, Tesla and other household name companies. Team Xi could also dump large chunks of Beijing’s$ 770 billion stockpile of US Treasuries.
China is developing its innovative abilities as the US prepares to launch trade wars. China will see a tripling of its STEM workforce in the next two decades, according to Han Feizi, a contributor to Asia Times, this week. Meanwhile, American students are leaning away from jobs in science, technology, engineering and mathematics.
There’s a view, too, that this STEM boom will ensure a productivity surge that softens the blow from China’s deflation trend.
As Han notes, the globe hasn’t experienced a sustained period of prolonged supply-driven deflation since America’s post-Civil War years from 1873 to 1899. That wave of industrialization saw massive investments in manufacturing technology, roads, railways, steel production and other sectors to increase economic efficiency.
Looking forward, in light of Lin’s forecasts, it’s worth noting that the United Nations reckons that China’s role in global manufacturing could hit 45 % in the next five years, versus just 30 % in 2022.
This, of course, assumes that Xi’s inner circle accelerates steps to realize his Made in China 2025 dream. And that the People’s Bank of China ( PBOC ) succeeds in keeping deflation from getting out of control.
The US, meanwhile, needs to supersize efforts to revitalize its semiconductor sector. Scott Bade, senior analyst at Eurasia Group, notes that Biden’s CHIPS , Act , was a tool to address several problems: reshoring domestic chip manufacturing for national security use, advancing the US’s position toward becoming a world leader in advanced semiconductors, keeping advanced , chips , manufacturing out of China– through guardrails on companies that receive funds– and de-risking Taiwan.
” Directionally”, Bade says,” the , CHIPS , Act , is making progress on all these priorities. However, rebuilding US domestic chips infrastructure was always going to be a long and complicated process because there were so many players and billions of dollars at stake.
It will take many years and likely several funding packages for a US ecosystem to fully grow, in contrast to nations like Japan, which already have robust ecosystems in place.
Regardless of the politics, the US tech industry still faces significant structural constraints. As companies establish supply chains, train employees, and overcome the typical growing pains of starting up brand new facilities, “recreating a semiconductor ecosystem in a short period of time was always going to be challenging,” Bade continues.  ,
Japan, says Stefan Angrick, an economist at Moody’s Analytics, has used foreign direct investment to great effect to avoid threatened trade restrictions. ” Setting up manufacturing plants in the US contributed to local production, GDP and jobs, reducing political pressure for tariffs or quotas”, he says. This might serve as a strategy for reducing upcoming trade frictions.
Japanese auto and auto-part manufacturers will be under pressure to boost investment in the US during Trump 2.0. Angrick notes that South Korean and Taiwanese electronics producers are subject to similar considerations.
Samsung and Taiwan Semiconductor Manufacturing Company ( TSMC) are already significant investors in the US, but Trump may push for more despite mixed pre-election messaging surrounding the CHIPS Act.
With Trump,” the only certainty is uncertainty”, says Ryan Sweet, chief US economist of Oxford Economics:” With … Trump promising wide-ranging tariffs, mass deportations of undocumented workers and adjustments to both the Inflation Reduction Act and CHIPS Act, these changes could be substantial”.
But even before Trump arrives, is the Biden White House over-reaching in its final days?
According to Yanmei Xie, an analyst at Gavekal Research, Biden’s Commerce Department has been implementing a final wave of tech restraints directed at China. They appear to be trying to lock in controls that Team Trump can’t easily reverse with a new trade agreement, solidifying a trade bloc that excludes Xi’s economy, along with slowing China’s progress.
The downside is that the regulations will backfire, and the majority of the world will instead choose to purchase cheap Chinese technology rather than join US protectionist forces.
Future supply chains could split in two ways, according to Xie: a high-cost one that serves the picky US market and a low-cost one that serves not just China but much of the rest of the world. In that case, US protectionism will be a qualified success, but at the risk of making the US, not China, the isolated market”.
Follow William Pesek on X at @WilliamPesek