Trump wants US to make more, Xi wants China to spend more: Both aim to tame headwinds

China over the past decades became ‘the factory’ of the world and a giant economy by selling goods worth hundreds of billions to the US every year. The Chinese economy has always been exports-driven, with less reliance on domestic consumption. For instance, consumption accounts of just 40 per cent of China’s GDP; whereas the figure hovers near 50 to 70 per cent in developed economies worldwide.

However, with Donald Trump back in the White House, China’s conventional trade practices may soon turn futile or increasingly less lucrative. US President Trump, with his ambition of Make America Great Again (MAGA), wants to bring factories back to the US. Earlier this week, he raised tariffs on Chinese imports to 20 per cent, sending shockwaves across Beijing and smacking a realisation that the current Chinese model of growth needs overhauling.

China pushes for economic reforms

While addressing the Great Hall of the People, Premier Li Qiang on Wednesday (March 5) declared that the Chinese government’s top priority was to “vigorously boosting consumption”. That’s how, he asserted, the government aims to achieve the growth target of 5 per cent.

The premier urged the Chinese officials to “make domestic demand the main engine and anchor of economic growth” in 2025.

Earlier in December, President Xi Jinping also made a similar pledge, just a month after Trump’s landslide victory in presidential elections. In his speech, which was made available to public just last week, Xi dubbed the pivot towards consumption a “strategic move” and argued it was necessary for “both economic stability and economic security.”

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The Trump threat

While policymakers in Beijing have long vowed to move towards a consumption-led economic model, Trump’s tariff threat seems to have stimulated a sense of urgency.

Trump’s trade war means China won’t be able to access US markets as freely as it could do before, knocking out a major driver of growth for Beijing. With the Chinese economy already struggling, Trump’s tariffs could further push it into deflation.

The Trump administration in fact wants China to bridge the trade imbalance by allowing imports of US goods, an ambition that directly contradicts with Xi’s own vision of making the Chinese economy great again using domestic consumption-led growth model.

Challenges for China

According to experts, this transition won’t be smooth for China, especially as it looks to strike a balance between the Trump threat and its own vision for growth.

Neil Thomas, a fellow for Chinese politics at the Asia Society Policy Institute’s Center for China Analysis, was quoted by Bloomberg as saying, “The transition to a consumption-led economy is so hard because Beijing would need to massively boost incomes and the social safety net, but does not want to significantly raise taxes or reallocate sufficient resources from enterprises and the state.”

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At the same time, China doesn’t want to completely let go of the conventional investment-led growth model.

Premier Li stated that China aims to advance biomanufacturing, quantum technology, embodied artificial intelligence, and 6G, building on investor optimism sparked by AI startup DeepSeek’s breakthrough and Xi Jinping’s recent meeting with billionaire Jack Ma.

While China leads in industries like electric vehicles and pushes for technological progress amid US restrictions on advanced chips, boosting consumer spending remains crucial to achieving Xi’s long-term growth targets—especially as consumer confidence struggles to recover post-pandemic.