Is US president-elect Donald Trump bluffing about signing an executive order to introduce his tariff plan on his first day in office in January? Predicting when he will treat foreign policy other than as a game of poker is difficult, to say the least.

Regardless of Trump’s actions, China needs to develop strategies to sustain its economic growth, anticipating a decline in direct trade with the United States.

Much has been written about the implications of Trump’s plan to impose 60 percent tariffs on all products imported from China and 25 percent on products coming into the US from Canada and Mexico. Some worry about supply chain disruptions, while others express concerns about price increases for American consumers.

The economic landscape between the US and China has been fraught with tension, particularly because of the tariff policies proposed by then-president Trump that began in 2018. Trump’s new tariff plan, said to be aimed at pressuring China to curb the export of fentanyl precursors to Mexico, could have significant repercussions on China’s economy.

China’s economic growth after the COVID-19 pandemic has been slower than expected. In November 2024, industrial output grew only 5.4 percent yearly, while retail sales experienced a modest growth rate of 3.3 percent. This indicates a need for more robust measures to stimulate domestic consumption.

At the same time, the National Bureau of Statistics reported that fixed-asset investment increased at a slower pace of 3.3 percent from January to November 2024. However, the real estate sector continues to struggle, with a decline of 1.9 percent in the third quarter.

Although China’s GDP grew 4.6 percent yearly in the third quarter of 2024, the Chinese government must urgently develop interventions to boost economic activity.

The Chinese consumer confidence index has been on a downward trend since 2021. Before the COVID-19 pandemic, it was above 110, but it has been hovering around 90, reflecting pessimism about the economy.

With anemic domestic consumption in recent years, China has leveraged exports to sustain its economic growth. Indeed, China’s goods exports in October 2024 increased 11.2 percent year-on-year, marking the largest expansion since March 2023.

China has traditionally focused on supply-side reforms, pushing for exporting goods such as electric vehicles produced by companies like BYD and NIO, and cellphones from Huawei, Xiaomi, and Vivo. However, some economists argue that relying solely on exports is unsustainable, as the global market might not be able to absorb all Chinese goods.

Economics Nobel laureate Paul Krugman has commented that the global market cannot absorb everything China wants to export. Even Brazil, China’s BRICS ally, has expressed concerns about the detrimental impact of Chinese exports on its manufacturing sector.

China should dial back its export policy and stimulate domestic consumption to maintain cordial relationships with the world and sustain economic growth.

Chinese consumers have a high savings rate, around 45.9 percent, compared to the American savings rate of 3 percent. Between 2020 and 2023, they accumulated an additional savings of 56 trillion yuan ($7.67 trillion). However, Chinese consumers have been reluctant to spend because of concerns about the future and expectations of falling prices. This hesitation has adversely affected the property market and overall economic activity.

China’s economic strategy in response to Trump’s uncertain tariff plans must be multifaceted. China can mitigate the impact of external economic pressures by stimulating domestic consumption, providing targeted subsidies, and leveraging its strengths in manufacturing and research. The government’s proactive measures to encourage spending and investment will maintain economic stability and growth

The Chinese government has implemented new measures to encourage Chinese consumers to spend more, stimulate domestic consumption, and support economic growth. In addition to lowering interest rates to encourage borrowing and spending, offering purchasing subsidies for properties and cash coupons for consumer goods, restaurants, and hotels can be effective strategies.

The purchasing strategy has worked in the past. During the 2008 financial crisis, when the export market dried up, China needed a plan to keep domestic manufacturers afloat. To do so, China offered subsidies for trading in old appliances and provided rural consumers with incentives to purchase designated Chinese brands of TVs, washing machines, phones, and refrigerators.

The central government should incentivize local governments to purchase unsold properties and convert them into affordable housing. However, this alone is not sufficient. Local government should also provide low-interest loans to develop infrastructure for easy access and create small businesses in these properties to build an ecosystem that supports economic growth.

These measures, combined with further interest-rate reductions, can create an environment conducive to increased consumer spending. The Chinese government should consider issuing more long-term bonds to fund these initiatives. Given the size of China’s economy and its strengths in research, development, and manufacturing, bold moves are necessary. By striking a balance between a supply-based and demand-based economy, China can continue to grow regardless of the external pressures from Trump’s tariff policies.

China’s past experiences with economic stimuli provide valuable lessons. During the global financial crisis of 2008, China’s export markets collapsed, yet the economy grew briskly because of government intervention. The State mobilized demand through State-owned banks and enterprises, supported by a buoyant property market. However, recent stimulus efforts have been less effective because of cautious credit demand and high debt levels. China must prioritize encouraging demand over enforcing financial discipline to navigate the economic risks ahead. Recent policy shifts, such as allowing local governments to issue additional bonds and focusing on boosting consumption, indicate a recognition of this need. Experimenting with electronic shopping coupons and expanding trade-in programs for household appliances are steps in the right direction.

China’s economic strategy in response to Trump’s uncertain tariff plans must be multifaceted. China can mitigate the impact of external economic pressures by stimulating domestic consumption, providing targeted subsidies, and leveraging its strengths in manufacturing and research. The government’s proactive measures to encourage spending and investment will maintain economic stability and growth.

As the global economic landscape evolves, China’s ability to adapt and implement effective policies will determine its resilience and continued prosperity.

The author is a distinguished professor at the UCLA Anderson School of Management.

The views do not necessarily reflect those of China Daily.