According to a survey conducted from November 13th to November 20th, it is projected that the United States may impose tariffs of nearly 40% on Chinese products in early next year, leading to a 1 percentage point decrease in China’s economic growth. Economists suggest that the recent economic stimulus measures by the Chinese Communist Party have limited impact, making it challenging to implement measures used in response to the US tariffs in 2018. With the dwindling policy tools at hand, China may need to shift focus towards boosting domestic demand and enhancing consumption.
The survey by Reuters, which included over fifty economists, marks the first economic survey on China by Reuters since former US President Trump’s election victory.
The majority of economists surveyed anticipate that Trump will implement tariffs early next year, with the average tariff rate expected to be 38%, ranging from 15% to 60%. However, most economists do not foresee a 60% tariff on Chinese goods in early 2025, as it could accelerate inflation in the US.
Regarding the impact of the new round of US tariffs on the Chinese economy, Oxford Economics previously estimated that if tariffs were raised to 60%, trade volume between the US and China could drop by 70%, reducing China’s market share in US imports from 14% in 2023 to just 4%. UBS projected that one year after implementing a 60% tariff policy, China’s economic growth rate would decrease by approximately 1.5 percentage points.
Most of the economists surveyed believe that China’s economic growth rate will range between 4.8% and 4.5% next year, consistent with pre-election estimates, but they forecast a further slowdown to 4.2% in 2026.
Although the new round of US tariffs has not been implemented yet, its impact on the Chinese economy is already evident.
Trump’s anticipated tariff hikes on China have accelerated foreign divestment from the country. SK Hynix, for instance, adjusted its plans to expand semiconductor chip production in China and decided to increase capacity in South Korean factories instead. Similarly, Samsung Electronics downsized production capability at its NAND flash plant in Xi’an, China.
As uncertainties grow around semiconductor production facilities operated by Hana Micron in China, the company is expanding equipment investments in Southeast Asia. Industry insiders have indicated a trend of multinational corporations, including Amkor, hastening their “exit from China.”
Despite the monetary and fiscal stimulus policies launched by the Chinese Communist Party since late September, the majority of economists interviewed by Reuters (out of 23 surveyed, 19) believe that these measures have had little impact on the Chinese economy, emphasizing the need for more stimulus efforts. Only four economists argue that these policies could promote economic growth.
The significant stimulus measures rolled out by the CCP include measures such as a 10 trillion hidden local debt swap, reserve requirement cuts, interest rate reductions, lowering stock home mortgage rates, lifting restrictions on real estate purchases, reducing down payments, expanding the whitelist of real estate developers, urban renewal projects in major cities, and policies like stock repurchases and increased lending.
Ji Mo, Chief China Economist at DBS Bank in Singapore, mentioned that negative wealth effects stemming from falling house prices and rising unemployment will continue to dampen consumption. While private investment remains subdued, increased infrastructure investment by the government might lead to a modest revival in fixed asset investment.
Furthermore, economists also downgraded their inflation expectations for China next year.
The expected Consumer Price Index (CPI) for China in 2023 is 1.1%, and 1.4% in 2026, both lower than the October survey predictions of 1.4% and 1.6%.
Amid prolonged economic pressures domestically, the policy space available for the CCP appears increasingly limited.
After the onset of US-China trade war 1.0 in 2018, China successfully expanded exports to markets in Southeast Asia, Mexico, and Russia to counter US tariff pressures.
If a new trade war escalation occurs, China may struggle to rely on redirecting exports to other countries to resist US tariffs. Major global economies, including the EU, India, and Brazil, are continually strengthening trade barriers against cheap Chinese goods and intensifying anti-dumping investigations.
According to reports from several Chinese media outlets, on November 15th, Brazil’s Ministry of Development, Industry, Trade, and Services raised the import tax on photovoltaic components from 9.6% to 25%. In 2023, China exported $4.78 billion worth of photovoltaic components to Brazil, accounting for 12% of the market share.
Moreover, the new US administration is taking steps to prevent China from utilizing third-party trade for its exports.
The recently inaugurated Chancay Port in Peru, under Chinese control, was set to become a rapid gateway for Chinese goods entering the Americas. However, the transition team of the Trump administration subsequently stated that goods passing through the port to the US would be subject to a 60% tariff as equivalent to Chinese products.
China managed to offset much of the impact of the first 2018 US tariffs through yuan devaluation, but a similar scenario seems less feasible this time around.
In 2018, the tariffs imposed by the Trump administration on Chinese imports ranged from 7.5% to 25%. Analysts stated that the 2019 10% devaluation of the yuan against the US dollar resulted in only a 2.4% increase in the effective tariff rate on Chinese export products.
If the impact of devaluation to counter tariffs were adopted this time as well, the yuan would need to depreciate by 18%, meaning the yuan-dollar exchange rate would reach 8.5. However, a substantial yuan devaluation again appears unlikely due to concerns about capital outflows.
The Wall Street Journal reported that should the US government enforce a new round of tariffs on Chinese goods, China may be forced to turn to a long-standing but resisted strategy – significantly boosting consumer spending to drive economic growth.
The report noted that in recent years, the contribution of the real estate sector to economic growth has sharply declined from its peak of 25%. The economic stimulus effect of public infrastructure investment has also weakened gradually. With Chinese consumers cutting back spending due to heightened economic uncertainties and slow income growth, the consumption share of GDP stands at around 40%, significantly lower than the US level of 70%.
Economists believe that the next phase of the trade war might compel Xi Jinping to adopt measures he has long resisted, such as enhancing the social security system, increasing investments in healthcare and education to encourage household consumption, and reduce savings.
Moreover, amidst surging public discontent, retaliatory social phenomena are increasingly emerging in Chinese society.
Analysts also argue that crisis-driven circumstances may push for previously unresolved economic reforms, particularly structural institutional reforms, including reforms in distribution, which could be accelerated.