Trump wants to sell America to China – but will they buy?

Telegraph

a day ago

On Wednesday, a jubilant Donald Trump declared that his trade deal with Beijing would 'open up China to American Trade', delivering 'a great WIN for both countries!!!'
Yet even as the US president trumpets victory, a chorus of Western companies has been warning that the spoils may be underwhelming.
Cosmetics company Estee Lauder is grappling with 'retail softness, reflecting subdued consumer sentiment' in China. Drinks giant Diageo, which makes Guinness and Johnnie Walker, said 'consumers remain cautious and the macroeconomic recovery is taking longer than expected'.
Unilever, the consumer goods giant behind Dove soap and Ben & Jerry's ice cream, told its shareholders that 'market growth in China remained subdued'. Burberry reported waning sales there, while KFC and Pizza Hut-owner Yum China said sales in the first quarter were flat.
When Starbucks this week slashed the price of its tea lattes and Frappuccinos in China by almost one fifth, it was only the latest sign that trouble was brewing in China for big Western businesses.
Trump wants Chinese consumers to buy more American goods, rebalancing what he sees as the lopsided trading relationship between the two countries. But the middle kingdom's economy is in a prolonged funk, reeling from a property crisis and a long hangover from harsh Covid restrictions.
With lingering US tariffs of up to 55pc taking a chunk out of China's exports, recovery in the world's second-largest economy depends on the willingness of Chinese consumers to open their wallets and start spending.
But unless companies cut prices, or the government steps in to boost demand, cautious Chinese consumers are at best spending selectively. Unlike China's gleaming motorways, the road to an economic rebound looks slow and uncertain – meaning Trump may well be disappointed.
Ending the US president's anti-China crusade depends on the Chinese consumer taking out their wallets. It's the 'excess savings' of China's households, coupled with the excess spending of the American government and consumers, that lie at the heart of the pair's unbalanced economic relationship.
In layman's terms, Chinese families save, while Americans buy – meaning China exports to the US far more than it imports.
'China has a singular opportunity to stabilise its economy by shifting away from excess production towards greater consumption,' Scott Bessent, the US treasury secretary, said on Wednesday.
So far, there is little sign of the balance shifting. In a recent survey by McKinsey, Chinese households said they were not planning to increase how much they spend as a share of their income. (McKinsey saw this as progress; in the 2024 version of the survey, households had actually been planning to reduce consumption.)
The survey found that rural dwellers were slightly more enthusiastic about shopping than their urban counterparts. That's unsurprising: it's in the cities where the scars of the property crisis, which began with the collapse of the developer Evergrande in 2021, are most acute.
'Property prices have fallen by around 20pc since the onset of the property crisis,' says Leah Fahy, a China analyst at Capital Economics. 'That has been a massive hit to household wealth and really dampened propensity to spend, and confidence as well.'
'And then more recently, you add all this tension around the trade war, what's going to happen with US tariffs. Even if the actual hit from that hasn't been massive yet.'
Justin Koh, a Shanghai-based director at consultancy AlixPartners, says: 'When I first came to China about 15 years ago, there used to be an idea that everything would only go in one direction – up. People just thought sales would double every year.
'Now, the consumer companies we're working with are more pragmatic about growth. They're also very pragmatic about opening and closing stores, about what works and what doesn't work in the market.'
Officially, China's economy is holding up, growing at 5.4pc in the first quarter from a year earlier. But the threat of a trade war looms over a country that still relies heavily on manufacturing.
Exports to the US slumped by almost 35pc in April from a year earlier and China is struggling with deflation. Consumer prices dipped 0.1pc, the fourth consecutive month of decline, led by food and fuel.
A survey by the EU Chamber of Commerce in China found that 83pc of food and beverage companies felt their business environment in the country was deteriorating.
Many consumers seem to be looking for bargains, waiting for price decreases, or keeping their yuan in the bank or under the bed.
Beijing has been encouraging people to spend, pushing them to buy more white goods by backing a trade-in scheme. It seems to have worked: according to the Xinhua news agency, it spurred 175bn renminbi (£18bn) of transactions this year, and 39pc year–on-year sales growth in April.
But that would only be a drop in the ocean of what is required. It might stack a percentage point or two on to GDP growth, but Capital Economics reckons consumption might need to expand by 4pc to offset the hit from falling exports.
Fahy says the government seems reluctant to wheel out the fiscal artillery needed to deliver this.
'You get a lot of lip service to the importance of supporting consumption, supporting demand, but they're really hesitant to expand things like social security measures, pension payments, welfare benefits – the things that are most needed to boost households' willingness to spend really and lower the savings rate,' she says.
Worryingly for Trump, even if there is an upturn in consumer spending, Chinese may not choose to buy American products.
'There was probably more bargain hunting back in 2022, 2023 – confidence was lower, there was a very clear dip,' says Koh.
'I think this bargain-hunting helped consumers understand other [non-Western] brands a little bit better – they realised that, 'Hey, there might not be that much of a difference there.''
Chinese business news site Caixin says there has been an increase in promotions for 'repatriated foreign trade products' – items originally made to sell overseas that are now being sold at home. This includes marketing campaigns and exhibitions at supermarkets, department stores and shopping malls.
Local brands are also gaining ground. Koh's 10-year-old daughter is wild for the Labubu dolls made by Chinese start-up Pop Mart, for example.
'They're the latest craze. If consumer confidence was at an all-time low, we'd likely be seeing less people buying them – less of that type of consumer behaviour,' he says.
'It's a sign of a more discerning consumer, and a consumer that's expressing his or her consumer confidence in different ways.'
The ball is now in Beijing's court: the government needs to do more if it wants a consumer-led kickstart for the economy, and a fix for the US-China trade imbalances. Without action, Trump's 'great WIN' may turn into a disappointing loss.