There already had been indications of Trump winning, although not by such a decisive margin. Initially, the US betting industry was predicting a Trump win. Then, there was the indication from the US stock market.

In October, stocks owned by Trump performed much better than those listed in the S&P 500. More importantly, Trump is being funded by major corporations and is supported by White Protestants and Catholics.

Historically, US business leaders have consistently supported the Republicans. Between 2007 and 2017, 57 per cent of the CEOs of S&P 1500 companies contributed politically to the Republican Party, 19 per cent gave to the Democrats, and the rest split their contributions between the two parties. 

On the economic front, the US accuses China of unfair trade practices related to forced technology transfers and intellectual property theft. But while big business is supporting Trump's plan to cut corporate taxes, few of them like the idea of Trump protecting them by imposing tariffs, especially on Chinese goods.

While the business elites are supported by the political elites, the latter are concerned that China is leveraging its newfound dominance in electronic exports for espionage, prompting the US to place leading Chinese firms like Huawei and ZTE Tech on its trade restriction list in 2019.

The China bashing initiated during Trump’s earlier presidency continued during the Biden era, with the US criticising China for human rights abuses in Xinjiang, the draconian security law in Hong Kong, its handling of COVID-19, and even taking steps to ban the social media app TikTok. The US now trades more goods and services with the European Union, Canada and Mexico, than it does with China. 

With Trump winning, harsher economic and political sanctions are likely on the horizon. Basic economic theory states that while the government generates revenue by imposing tariffs, it is the domestic consumers who ultimately bear the burden of those tariffs. A new paper from the Peterson Institute for International Economics finds that Trump’s campaign proposal of 10 per cent tariffs across the board, and 60 per cent tariffs on imports from China, would cost the average American household around US US$ 1,700 a year. These tariffs could lead to increased prices for consumer goods, making it challenging for the Fed to meet its inflation target of 2 per cent. 

Contrary to the popular rhetoric surrounding job creation, higher tariffs actually have a negative impact on domestic employment and income. A study finds that job losses from trade retaliation surpass job gains from tariff protection. In 2019, US exports to China supported 1.2 million jobs, while 197,000 people were employed by Chinese multinationals. Both were affected by tariff escalation.

Another related study pointed out that job losses due to cheap imports is significantly lesser than the benefits to US consumers in terms of lower price and income generation. While consumers enjoyed lower prices and a 13-percentage point increase in incomes, the negative impact on account of job loss is only 1-percentage point.

What policymakers fail to understand is that in the age of globalisation, trade has become increasingly fungible. To avoid US tariffs, Chinese manufacturers are now using Mexico as a backdoor. For the first time in two decades, Mexico has overtaken China as the largest exporter of goods to the US. In 2023, Mexican goods imported to the US totalled US$ 475 billion, approximately US$ 20 billion more than in 2022. During the same period, Chinese goods imports to the US amounted to US$ 427 billion, about US$ 10 billion less than the previous year.

An estimated US$ 3.7 billion Chinese FDI flowed into Mexico in 2023, which is significantly higher than the average flow of US$ 1.3 billion during the previous decade. Chinese companies are relocating their raw materials and manufacturing to Mexico to capitalise on the nearshoring trend, as Mexico is a partner in the United States-Mexico-Canada Agreement (USMCA), formerly known as NAFTA.

At least 30 Chinese firms now operate out of Mexico. For example, Chinese car manufacturers BYD and Chery International are establishing operations in the country. Container traffic from China to Mexico has surged in recent years, with a 22 per cent increase in 2024, compared to the previous year. In 2023, the increase was even more pronounced, at 33 per cent over 2022.

The years 2022 and 2023 also marked the highest volumes of exports from Mexico to the US. To take advantage of the increasing volume of US-Mexico trade, freights companies like Uber Freights, Maersk Line and DHL are setting up logistic and warehouse facilities on both side of the Mexico-US borders. 

Therefore, Trump cannot safeguard the US economy solely through harsh rhetoric against China. On the contrary, now that Trump has won the election, the world is likely to become more bipolar, with China poised to gain economically.

Protectionism and jingoism are likely to divert investment into a wasteful war economy, rather than towards more productive activities like addressing climate change.

According to Australia’s Lowy Institute, in 2001 — the year China joined the World Trade Organisation — over 80 per cent of the countries (whose data is available) had a larger volume of trade with the US than with China. By 2018, that figure had decreased to just over 30 per cent, with two-thirds of the countries (128 out of 190) trading more with China than with the US.

Over the last decade, China has spent more than a trillion dollars on infrastructure investment in over 140 countries, thereby building an economic relationship. High-speed railways in Indonesia, ports in Pakistan and Sri Lanka, bridges in Zambia, and intercontinental highways in Central Asia are all examples of how China is increasingly strengthening its economic and financial ties around the world.

A more protectionist strategy from Trump will only further alienate the US and its economy. 

(The writer is a professor at Mahindra University, Hyderabad. Views are personal)