Could Trump's Tariffs Help Democratize China?

Assessments of US President-elect Donald Trump’s plans to impose high tariffs on Chinese imports tend to focus on their likely economic consequences. But the tariffs’ impact on China’s politics might prove to be far more profound.

Western leaders long believed that China’s integration into the global economy would naturally lead to the rise of a strong middle class that would push for democratization. 

In Taiwan, for example, the rise of the middle class preceded the democratic transition, which began in 1987. At the time, per capita GDP ($5,325) was already approaching the high-income threshold of $6,000 – a level it surpassed the following year ($6,338) – and household disposable income accounted for 67% of GDP.

But the robust and pro-democratic middle class US leaders anticipated never materialized in China, not least because of the country’s one-child policy. Because the share of people in the workforce relative to children and the elderly implied a very low dependency ratio, Chinese families were able to make ends meet even with low incomes. 

Add to that the 1994 introduction of the tax-sharing system – which increased the central government’s budget for public services – and Chinese households hardly noticed that their incomes were not keeping pace with GDP growth.

Today, China’s per capita GDP is not far off the high-income threshold of $14,005, having reached $12,681 in 2023. But household disposable income, as a share of GDP, has declined from 62% in 1983 to 44%, well below the international average of 60-70%. Not surprisingly, household consumption also fell as a share of GDP over this period, from 54% to just 37%, compared to 60% globally.

The problem is that, rather than focusing on boosting domestic consumption by raising household incomes as a share of GDP, China’s leaders sought to address the country’s surfeit of workers and overcapacity by maintaining a large trade surplus – especially with the United States. 

US President Bill Clinton’s 1994 decision to delink China’s most-favored nation trade status from human rights paved the way for this approach. But it was China’s accession to the World Trade Organization in 2001 that opened the floodgates.

Clinton believed that WTO membership for China would reduce the bilateral trade deficit and be a “Trojan horse” for democratization. Instead, trade surpluses grew: in 2018, China’s exports to the US totaled $539 billion, while imports reached only $120 billion. 

The resulting trade surplus of $419 billion was 62 million times the average annual salary of China’s migrant workers, who comprise 80% of the manufacturing workforce. These massive and persistent surpluses entrenched China’s development model, impeded necessary reforms, and enabled the government, awash in wealth, to become increasingly authoritarian.

Meanwhile, US manufacturing declined sharply. Between 1971 and 2000, the number of US manufacturing workers remained steady at around 17.7 million, and the country’s share of global manufacturing value-added and exports hovered around 24% and 13%, respectively. 

After China’s WTO accession, however, US manufacturing jobs plummeted, reaching just 11.5 million in 2010. As of 2022, the US accounted for only 15% of global manufacturing value-added and 6% of exports.

The disappearance of well-paid manufacturing jobs in the US fueled popular frustration, particularly in the so-called Rust Belt. So, when Trump promised to bring manufacturing jobs back to the US by imposing new tariffs on America’s trading partners, especially China, he found a receptive audience. 

But the tariffs he imposed during his first term had limited impact, not least because China found ways to circumvent them, such as through re-exports and currency devaluation. That probably will not be possible this time around.

Trump is threatening to impose 60% tariffs on Chinese goods, as well as 10-20% tariffs on imports from all other countries. 

Under such a regime, China could not simply shift exports to other countries, because, facing tariffs of their own, these countries would be unable to run larger surpluses with the US. With debt pressures intensifying, these countries might impose their own tariffs on Chinese imports. A weaker Chinese currency would lead to capital outflows and a shrinking middle class.

But with a well-calibrated response, China can ensure that any gains secured by the US do not come at its expense. The first pillar of such a response is structural reform aimed at increasing the GDP share of household disposable income. 

This would boost domestic consumption (including demand for imports from the US), mitigate overcapacity, and make it easier for families to raise children, thereby helping to stave off demographic collapse.

Crucially, this approach would also expand the middle class, which may well start to demand greater freedoms, much as the West envisioned three decades ago. Chinese politics might then start to become more compatible with Western democracy.

China should also adjust the import-export structure, reducing imports of non-resource goods from countries like Brazil, Russia, and Saudi Arabia – with which China runs trade deficits – in order to free up market share for US imports. 

And it should pursue industrial cooperation with the US – like that modeled by Tesla – thereby helping the country to rejuvenate its manufacturing sector while preserving China’s market share.

Finally, China must work with the US to build mutual trust. Even if the US manages to raise its export-to-import ratio, it will continue to run deficits with the world, owing to the dollar’s role as the global reserve currency. 

To secure the largest possible share of these surpluses, China must work to improve bilateral relations, such as by cooperating with the US on key priorities, from reducing fentanyl flows to strengthening the US-led international order, which, after all, made China’s spectacular rise possible.

US-China trade imbalances might seem like an economic problem, but political engagement is an essential part of the solution. By forcing China to nurture its middle class, Trump’s tariffs might even open the way for a profound political transformation.

Yi Fuxian, a senior scientist at the University of Wisconsin-Madison, spear-headed the movement against China’s one-child policy and is the author of Big Country with an Empty Nest (China Development Press, 2013), which went from being banned in China to ranking first in China Publishing Today’s 100 Best Books of 2013 in China.

Copyright: Project Syndicate, 2025.
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