China's economic plans make a trade war likely whether Biden or Trump wins the presidency

• China's surge in exports means a trade conflict is likely under either presidential candidate, Capital Economics said.
• The nation now makes up 15% of global manufacturing exports, which it will have to unload onto US consumers.

No matter who takes over the White House, an overlooked boom in China's exporting power is setting the stage for another trade clash with Washington, Capital Economics warned this week.

"Investors may be nervous about the potential return of Mr Trump and the threat of a renewed trade war, but that conflict looks ever more likely whether the next administration is Democrat or Republican," group chief economist Neil Shearing said in a new note.

At face value, it's hard to see that Chinese exports have picked up in any meaningful way. Officially, China's current account surplus remains below peak levels in its share of global GDP. But Shearing notes that customs data reveal a much more significant shift.

In fact, he points out that the surplus-to-GDP actually stands near record highs. He sees it as a consequence of the pandemic, when outsized lockdown demand ignited China's manufacturing sector, and output has jumped over 25% since 2019.

But while demand has now slowed, Chinese production hasn't.

According to China Beige Book CEO Leland Miller, that's happening as Beijing sees manufacturing as an alternative source of growth to the property market. Though the sector has long led China's prosperity, it's become riddled with debt and defaults.

"They're worried about the reckless credit expansion, they're worried about the property sector," Miller told CNBC this month. "They want to just batten down the hatches and focus on national security priorities, build a domestic chip ecosystem, you know, solidify the core of the economy, concentrate on advanced manufacturing."

But both Miller and Shearing agree that this strategy could erupt in global disputes.

To unload its additional supply, Shearing says China will have to look beyond its own markets, as domestic consumption has slumped excessively in the country. That puts more pressure on foreign buyers, but especially the US and Europe.

He says that given that China now makes up 15% of global manufacturing exports, it cannot rely on smaller nations to absorb all of its output, putting pressure on the West.

"China's exporters are probably more reliant now on US consumers than they were when the trade war began during Donald Trump's first term," Shearing wrote.

This will deepen the US's trade deficit with China for years to come, something any president will likely want to avoid. Miller estimated that a trade war could start as soon as next year.

So far, Trump has laid out plans to introduce seismic-level tariffs, including a 60% tax on Chinese goods. During his tenure in the White House, he led a tit-for-tat trade war with Beijing, with many of its policies still in place under President Joe Biden.