US tariffs seen as far worse shock to China than 1st trade war
Trump’s second wave of tariffs could deal a far heavier blow to China’s economy than the 2018-19 trade war, analysts warn — with GDP growth at risk and stimulus on the table.
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Published April 03, 2025
Donald Trump’s latest tariff hikes threaten to inflict a bigger hit on China’s economy than it suffered during his first trade war.
The 54% U.S. tariffs on China’s goods announced since the start of Trump’s second presidential term may drag the country’s gross domestic product growth down by 2.4 percentage points in 2025, according to Citigroup, an assessment it says was made before considering any offsetting measures.
Economists at BNP Paribas, Societe Generale SA, Oversea-Chinese Banking Corp and ING Bank forecast a hit of 1 to 2 percentage points.
China faces heavier tariff hit than in Trump’s 1st trade war #
“The U.S. tariff shock would be significantly higher and more pervasive than 2018-19,” Morgan Stanley economists led by Robin Xing said in a report. “Besides the direct tariff shock on China’s exports to the U.S., the indirect impact would also be notable, as the U.S.’s pervasive tariff hikes on other trading partners would slow global trade.”
A severe slowdown will likely prompt Chinese policymakers to roll out more stimulus. That could come in the form of several trillion RMB in additional government spending or a liquidity boost to banks, some economists said.
Beijing readies stimulus to offset economic shock #
Senior officials have repeatedly signaled they’re ready to act to offset external shocks. Beijing today also condemned the U.S. levies and pledged to hit back with unspecified measures.
“It would be easy for China to roll out another one to two trillion RMB special sovereign bonds if necessary,” said Serena Zhou, senior China economist at Mizuho Securities Asia.
The government already planned to issue 1.3 trillion RMB ($179 billion) of ultra-long special sovereign bonds this year and use some of the proceeds to subsidize purchases of consumer goods.
The trade standoff may wallop the economy just as its performance was steadying in the beginning of 2025, with little sign of damage from tariff increases so far.
The recovery momentum has led at least seven international banks including Morgan Stanley and Citigroup to upgrade their forecasts to China’s 2025 GDP growth over the past month.
Trade dispute threatens China’s 5% growth target #
The improved sentiment could falter now after the latest tariff announcements. It may also put this year’s ambitious growth target of around 5% out of reach in the absence of more policy stimulus.
“The tariffs, if implemented, will hurt China on multiple fronts, by weakening demand for China’s products in the U.S. and hitting the world economy. What’s more, the U.S. action risks stronger retaliation from other trading partners — further depressing global demand,” say Bloomberg economists Chang Shu, David Qu and Eric Zhu.
“The tariff impact could start to be seen from the second quarter of 2025,” Citigroup economists including Yu Xiangrong wrote in a note released today. “We now see a 50-100 basis points downside risk to our 4.7% GDP forecast, pending potential extra stimulus.”
The Communist Party’s decision-making body Politburo will convene in late April and July to discuss the economic outlook and policies — meetings it could view as potential windows for unveiling major policy adjustments.
Other channels for stimulus include a cut to the reserve requirement ratio for banks, which would unlock cash they can lend or invest. Analysts had flagged such a move as a likely response from the People’s Bank of China to massive tariff hikes.
“We think the probability of an RRR cut in April is rising, given the need to inject liquidity as well as to support market sentiment,” said Zhi Xiaojia, chief China economist at Credit Agricole CIB in Hong Kong.
Silver lining: Tariffs target other countries too #
One silver lining for China is that many other U.S. trading partners have also been targeted with steep increases in levies.
The result is likely a narrower gap in terms of U.S. tariff rates between China and some of its trade competitors, such as Vietnam. As a consequence, this could potentially moderate the impact on China, as it may become more costly to substitute its products with imports from other countries.
What this means is that the eventual impact of the tariffs on China’s exports and economy remains difficult to quantify.
“The situation is more nuanced this time” compared with Trump’s first term, said Tommy Xie, head of Asia macro research at Oversea-Chinese Banking Corp. “Ultimately, the real economic cost may depend more on substitution limits than the nominal tariff rate itself.”
