The current US-China trade tensions are causing significant economic disruption, with China’s GDP growth expected to be negatively impacted by a substantial 1.8% due to the existing tariff rates. The tariffs on Chinese goods have surged to 142% and on US goods to 157%. Any further increases in tariffs are likely to have a diminishing impact on China’s growth, according to Standard Chartered economists.
The economists believe that the current situation presents a “perfect storm” with significant challenges to China’s growth prospects. However, they also emphasize that there are mitigating factors at play, including a 90-day delay in non-China reciprocal tariffs by the US, which should keep goods with China-produced content flowing to the US. Additionally, a moderate depreciation of the Chinese yuan (CNY) could act as a shock absorber.
To offset the impact of the US tariffs on its net exports, China can explore new export destinations and reduce its reliance on overall imports. The economists also anticipate that China’s government will roll out further stimulus measures to prevent growth from severely undershooting its 5% target.
Therefore, they recommend a further CNY 1.5-2.0 trillion (1.0-1.5% of GDP) fiscal stimulus, which is gradually introduced in two phases. The timing of the next Planned meeting of the Politburo in late April and July are critical in assessing the government’s readiness to introduce additional stimulus. Standard Chartered economists also warn of downside risks to China’s growth from a potential global recession and repercussions on domestic employment.