On July 4 local time, US President Trump signed the “Big and Beautiful” tax and Spending Bill. The US House of Representatives passed the “Big and Beautiful” bill promoted by President Trump on the afternoon of July 3rd with a vote of 218 in favor and 214 against.
The “Big and Beautiful” bill is the signature legislative agenda introduced by Trump after his return to the White House in early 2025. The main contents of this bill include extending the tax cuts for businesses and individuals passed by Trump in 2017 during his first term, exempting tips and overtime pay income from taxation, etc. Its core provision is to reduce corporate taxes.
There are concerns within the United States that this bill will further exacerbate the country’s fiscal deficit and debt risks. The criticism of the bill mainly lies in the fact that the United States lacks the impulse to control fiscal expansion and is structurally not conducive to narrowing the gap between the rich and the poor, etc., which has a negative impact on the long-term confidence in dollar assets. This provides a certain historical opportunity for steadily and prudently promoting the internationalization of the RMB, but fundamentally it still depends on the competition of economic strength between China and the United States.
What impacts will the “Big and Beautiful” bill have on China’s economy after its signing and passage?
Zhang Di, chief macro analyst at China Galaxy Securities, believes that from an economic perspective, tax cuts will bring certain benefits to the US economy, helping to delay the expectation of a US economic recession. The recovery of the US economic prosperity will, to a certain extent, provide the Trump administration with some bargaining chips. From a trade perspective, the “Big and Beautiful” bill involves the abolition of tax exemption rights for small parcels worldwide, further increasing the frictional costs of small transactions. Small parcels under $800 cannot avoid US tariffs even through overseas export or re-export, which has a certain impact on industries such as small commodity manufacturing and cross-border e-commerce.
Zhang Di further pointed out that after the “Big and Beautiful” bill was signed and passed, Chinese enterprises will pay more attention to the technology field. The bill will promote the localization of chip manufacturing production. In the future, there will be all-round competition between China and the United States in the field of artificial intelligence. The Trump administration may continue to increase subsidies for its own country in the field of AI. Another key focus is on the new energy sector. The bill has either abolished or tightened the tax credit for clean energy and restricted US companies that use Chinese raw materials, technologies and equipment from enjoying tax benefits.
The changes in global trade trends have been transmitted to the micro-enterprise level. The International Business Report (IBR) released by Grant Thornton International shows that the optimistic attitude of global mid-market enterprises towards the economic outlook continues to cool down. Only 71% of the surveyed business leaders are optimistic about the economic outlook for the next 12 months, a decline of 2 percentage points compared to the first quarter of 2025. Meanwhile, concerns over economic uncertainty rose sharply by 6 percentage points to 61%, leaping to become the primary factor restricting business growth.
In addition, negotiations between the United States and most of its key trading partners remain deadlocked, as reflected in the fact that concerns over geopolitical turmoil have risen by 6 percentage points to 53%, reaching a record high. Concerns over the supply chain have reached a historical peak of 49% (up by 1 percentage point); It is expected that the proportion of enterprises facing future order shortages will also rise to 50% (an increase of 3 percentage points). Such concerns are affecting the international layout of enterprises. The proportion of enterprises planning to increase exports will be raised by 3 percentage points to 50%. The proportion of enterprises expecting revenue growth in overseas markets dropped by 4 percentage points to 48%, but the proportion of those planning to expand the number of export countries (48%) and increase the number of non-domestic market employees (40%) remained stable.
Peter Bodin, the CEO of China Tong International, said that volatility, uncertainty, complexity and ambiguity have become the norm in the market. Geopolitical turmoil is prompting all parties to re-examine the sustainability of trade relations, and new trade agreements and regulations are emerging at an accelerated pace. Enterprises are reducing risks and enhancing resilience by diversifying their supply chains and exploring new markets. Moreover, the shift in investment focus reflects the innovation in value creation methods. The digitalization process is continuously advancing, and artificial intelligence remains at the strategic core.
In the field of investment, manufacturing investment has stood out the most in the past few years. As one of the traditional three major investment areas (manufacturing, real estate and infrastructure), manufacturing investment has performed commendably in the past few years.
Wu Ge, chief economist of Changjiang Securities, believes that manufacturing investment has pro-cyclical characteristics and is closely related to external demand and exports. Under the current background of responding to external demand shocks, although manufacturing investment still has potential, due to its pro-cyclical nature, it may not be able to effectively hedge against fluctuations in external demand.
Therefore, it is necessary to seek counter-cyclical investment variables rather than simply relying on pro-cyclical manufacturing investment. Wu Ge said that, in addition, manufacturing investment is also facing the problem of intense competition in certain fields, which further limits its sustainability as a traditional driving force. However, it is still necessary to pay attention to and strengthen investment in traditional infrastructure and real estate and other fields to cope with short-term economic fluctuations.
Wu Ge suggested that, judging from the pace of policy implementation, action should be taken as soon as possible. Looking back at last year’s macro-control, the strong counter-cyclical reversal of policies occurred in September. During this period, the Political Bureau of the Central Committee rarely discussed economic issues in September and became aware of the difficulties the economy was facing. Since then, the policy intensity in the fourth quarter has significantly increased. Fiscal, monetary and real estate policies all reached turning points after the Political Bureau meeting in September, rather than in the first three quarters.
In the event of strong external shocks, it is recommended to take appropriate measures in advance. Pre-adjustment and fine-tuning in advance can make economic fluctuations more moderate, enhance the stability of the overall economic operation, and better cope with the current complex economic environment. Wu Ge said.
