US President-elect Donald Trump had said during his campaign that he would impose a 45% tariff on China. His victory raises concerns about rising trade friction between China and the US.

Trade imbalance between China and the US is the main driver for Trump’s proposal to impose high tariffs on China. Half of the US’s trade deficit is with China. A 45% tariff on Chinese exports (as proposed by Mr. Trump) could reduce China’s exports to the US by 21%, or 4.1% of China’s total exports and 0.9% of GDP.

45% tariff on Chinese exports unlikely:

Legally, the president would need Congressional permission. Trump also pledged to label China a currency manipulator, but the RMB is facing depreciation pressure and claiming the RMB as “undervalued” may be seen as ungrounded.

High tariffs on Chinese products would bring fiscal pain for the US itself, not only by damaging the interests of US multinationals in China, but also by reducing China’s demand for US imports, and increasing costs for US businesses and consumers.

As the world’s second largest importer, there is ground for negotiation between China and the US to achieve a mutually beneficial agreement. China’s large imports of agricultural products and services from the US may become bargaining chips. China accounts for >40% of global exports of many manufactured products, making it difficult to find an alternative in the short term.

Trump’s three main economic proposals—tax cuts, infrastructure investment and trade protectionism—may be incoherent. It appears relatively easier to achieve consensus around cutting taxes and boosting infrastructure investment, but trade protectionism could face great resistance.

Trump’s proposed economic policies entail both opportunities and challenges for China’s exports. While trade protectionism would hurt China’s exports, tax cuts and infrastructure investment could benefit global and China’s export demand. The net effect will depend on the implementation of these policies.

Protectionism brings uncertainty to global trade, but also presents opportunities for China. As wealth polarization raises the risk of a reversal of globalization, China needs to rely more on domestic demand. The US’s protectionist policy may alter the global trade landscape; on the other hand, China has the potential to play a greater role in global trade and global governance.