Donald Trump to Impose 40% Tariffs on China, Economists Warn of Growth Slowdown

The United States could impose nearly 40 per cent tariffs on imports from China early next year, potentially affecting growth in the world’s second-biggest economy by up to 1 percentage point.

A Reuters poll of economists predicts that the President-elect will resist starting off with blanket 60 per cent tariffs on Chinese goods.

Trump, who is due to make a comeback to Oval Office in January, pledged during campaigning to slap hefty tariffs on Chinese imports as part of a package of “America First” trade measures, raising concerns in Beijing and increased growth risks for China.

The proposed tariffs are significantly higher than the 7.5-25 per cent imposed on China during his first term. In addition, the Chinese economy faces more vulnerabilities, including a prolonged property slump, rising debt risks and soft domestic demand.

A Reuters poll involved over 50 economists both within and outside mainland China, conducted between November 13-20, revealed that a large majority expects that Trump will impose the tariffs by early next year. The median forecast is 38 per cent, with predictions ranging from 15 per cent to 60 per cent.

However, majority of the respondents said they do not anticipate blanket 60 per cent tariff on Chinese good in early 2025 as this could increase inflation within the United States.

“We expect the new US administration to bring back the original plan of Trump 1.0,” ANZ's chief economist Raymond Yeung said, estimating that the average tariff on Chinese goods could be raised by 32-37%, reported Reuters.

Late September, Chinese policymakers announced stimulus measures to boost growth, however they will face increased pressure next year to stimulate domestic demand to offset an expected decline in exports, which have been a key driver of growth this year, as per analysts.

The poll also forecasts that the new US tariffs could hurt China’s economic growth by 0.5-1.0 percentage points in 2025.

As of now, most of the economists have maintained their median growth forecasts for this year and 2025 at 4.8 per cent and 4.5 per cent, respectively, consistent with projections made before US elections. Growth is likely to slow further to 4.2 per cent in 2026.

They are closely monitoring the Trump administration's China trade policies, which could result in potential downgrades to their economic outlooks.

"Exports will be a key pillar of growth as global demand holds up, though new U.S. tariffs could shave up to 1 percentage point off GDP growth," said Mo Ji, chief China economist at DBS.

"Consumption will remain lacklustre due to wealth effects from falling property prices and rising unemployment. Infrastructure investment will drive a moderate fixed asset investment recovery, though private investment lags."

Additional Stimulus Expected as Recent Measures Fall Short

Majority of economists, or 19 out of 23 respondents, said the recent fiscal and monetary stimulus measures announced by the Chinese government have had a minimal impact on the economy and that further stimulus is required.

On the other hand, Chinese policymakers expect the burst of stimulus introduced around two months back would support the economy achieve a government growth target of around 5 per cent this year.

China is likely to announce new stimulus measures in the coming weeks to help protect the economy from any trade tensions with the United States. However, analysts expect the economy’s slowing trajectory to continue despite policy support.

Jian Chang, chief China economist at Barclays says the Chinese government still has time to monitor and react to the US policy and its effect on China growth and then announce policy measures at a later stage.