Economists warn of severe impact on China’s growth as US tariff hikes take effect
Donald Trump’s latest round of tariffs on Chinese goods threatens to deliver a more severe blow to China’s economy than the trade war of 2018-19, according to leading economists.
With US tariffs on Chinese imports now at 54%, the economic impact on China’s GDP could be as much as a 2.4 percentage point decline in 2025, according to Citigroup Inc. This assessment does not yet account for any potential policy responses from Beijing to counteract the damage.
Other major financial institutions, including BNP Paribas, Societe Generale, Oversea-Chinese Banking Corp, and ING Bank, predict a 1% to 2% contraction in GDP. Last month, Beijing set a growth target of around 5%, but analysts now warn that achieving this will be increasingly difficult without further stimulus measures.
Tariff shock likely to disrupt global trade
According to Morgan Stanley, the economic shock from Trump’s new tariffs will be more severe and widespread than the first trade war. In addition to directly reducing Chinese exports to the US, there will also be a knock-on effect on global trade as higher tariffs on other countries slow overall economic activity.
“The US tariff shock would be significantly higher and more pervasive than 2018-19,” said Robin Xing, chief economist at Morgan Stanley.
China prepares major stimulus measures
A sharp economic downturn is likely to push Chinese policymakers into action, with economists predicting several trillion yuan in additional government spending or liquidity injections into the banking sector.
Senior Chinese officials have signalled readiness to intervene, and Beijing has condemned the US tariffs, promising retaliatory measures in response.
Serena Zhou, senior China economist at Mizuho Securities Asia, suggested that Beijing could issue another ¥1-2 trillion ($138-$276 billion) in special sovereign bonds if necessary.
So far, the Chinese government has already committed to issuing ¥1.3 trillion ($179 billion) in long-term sovereign bonds, with some proceeds expected to subsidise consumer purchases in an attempt to sustain domestic demand.
China’s economy at a critical juncture
Despite Trump’s escalating trade war, China’s economy had shown signs of recovery in early 2025, leading at least seven major international banks—including Morgan Stanley and Citigroup—to upgrade their growth forecasts for the year.
However, this optimism may now be short-lived following the latest tariff hikes. Without additional policy interventions, China’s 2025 GDP growth target may now be unattainable.
Citigroup economists, led by Yu Xiangrong, warn that the impact could become apparent as early as Q2 2025.
“We now see a 50-100 basis points downside risk to our 4.7% GDP forecast, pending potential extra stimulus,” Citigroup analysts wrote in a note on Thursday.
Chinese policymakers to discuss response measures
The Chinese Communist Party’s Politburo is set to meet in April and July to discuss economic policy, and these meetings may serve as a platform to announce major new stimulus measures.
Possible government interventions include:
- Cutting the reserve requirement ratio (RRR) for banks to free up cash for lending and investment.
- Lowering interest rates to support economic growth.
- Expanding state-backed spending on infrastructure and technology sectors.
Bloomberg Economics expects the People’s Bank of China to cut the RRR by 0.25% in April, followed by a 10 basis point policy rate cut in May. Overall, analysts predict a 100 basis point reduction in RRR and 30 basis points of interest rate cuts this year.
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“We think the probability of an RRR cut in April is rising, given the need to inject liquidity and support market sentiment,” said Zhi Xiaojia, chief China economist at Credit Agricole CIB in Hong Kong.
China not the only target of US tariffs
One potential silver lining for China is that many of its trading rivals—including Vietnam, Mexico, and India—have also been hit with higher US tariffs.
This could help narrow the competitive gap, making it less profitable for US businesses to shift supply chains away from China.
“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.”
Uncertain future as trade war escalates
With China and the US locked in another high-stakes trade conflict, the global economy faces renewed uncertainty.
If Beijing responds with aggressive countermeasures, the situation could escalate into a full-scale economic confrontation, impacting financial markets, supply chains, and global trade flows.
For now, China’s economic resilience will be tested, and its response to Trump’s tariff escalation will determine whether it can sustain growth in the face of mounting external pressures.
