(Yicai) Nov. 29 -- The next Trump administration is expected to impose additional tariffs on imported goods next year, but their impact on Chinese exports may be less severe a second time around, according to Morgan Stanley’s chief economist for China.

China's global supply chain layout may mitigate the effects of steeper US tariffs, Robin Xing told Yicai yesterday. Even if the new levies are higher than those introduced in 2018-2019, during president-elect Donald Trumps’s first occupancy of the White House, they will be less effective as Chinese firms have offshored more production since them, he said.

Morgan Stanley's US public policy team predicts that this time around a Trump government may impose tariffs on China in phases. The effective rate is expected to rise to 26 percent by the end of next year and to 36 percent by the close of 2026, providing a cushioning effect.

The direct impact on Chinese exports would likely be similar to 2018-2019, while the indirect effects on business confidence and capital expenditure might be milder, Xing noted. 

As a share of the US market, Chinese exports have also fallen to 15 percent from 19 percent in 2017, with significant increases in exports to Russia, the Association of Southeast Asian Nations, and Mexico, according to United Nations data.

However, Xing warned that if the United States were to impose an additional 10 percent levy on imports from all countries, that could sap global demand, exacerbating the risk of supply chain disruptions and further undermining business confidence.

Against the backdrop of potentially higher US import tariffs, the People’s Bank of China, the country’s central bank, may opt for a more moderate depreciation of the Chinese yuan going forward compared with 2018-2019, Xing pointed out.

In the coming months, China will introduce new policies that will likely be smaller in size and more focused on the supply side, potentially in the region of CNY2 trillion (USD276.4 billion).

A third of that stimulus will go toward underpinning consumption and paring back the housing stock, while two-thirds will be used to boost infrastructure and manufacturing investment, according to Xing.

“Even though monetary policy will remain accommodative to align fiscal policy, there is limited room for policy rate cuts due to narrowing net interest margins at banks and pressure on the yuan caused by US tariff threats,” he added.

Editor: Futura Costaglione