Politics
Trump's 60% tariffs could hurt China's economy, UBS says
Republican presidential candidate Donald Trump has said he could impose a 60% tariff on Chinese imports if he returns to the White House, and a new analysis predicts that would significantly slow the world's second-largest economy and send it to the brink of deflation.
Taking into account the effects of Trump's 2018 tariffs on China, UBS economists have proposed a simplified model of what a new round would do, assuming China doesn't retaliate, other countries don't match U.S. tariffs and some trade is diverted elsewhere.
According to them, a 60% tax would slow Chinese GDP growth by 2.5 percentage points over the next 12 months. About half of this slowdown would come from lower exports, with the rest due to indirect impacts on consumption and investment.
Beijing’s stimulus measures to mitigate the impact of the tariffs would reduce the economic drag to 1.5 percentage points, leading UBS to estimate that GDP growth in 2025 and 2026 could fall to around 3% if the hike is implemented in mid-2025. That’s below the bank’s baseline forecast of 4.6% and 4.2%, respectively.
Over time, a potential increase in exports and production in other economies could help reduce the impact of higher U.S. tariffs, but there is also a risk that other countries could also raise tariffs on imports from China, UBS economists wrote in a note published Monday. In addition, the lingering impact of lower employment and investment spending will also weigh on the domestic economy.
If China retaliates in kind, the economic impact would be harsher, while less severe tariffs would have less of an effect, the note added.
But the mere threat of such a tariff hike could hurt the Chinese economy. Even if the tariff hike is reduced or avoided, some damage to the economy would be inevitable as U.S. producers and importers turn away from China to avoid risk and uncertainty, UBS warns.
China's economy is already slowing due to a continued real estate slump, weak domestic demand, massive local government debt and the Biden administration's expansion of trade restrictions.
In the second quarter, GDP grew 4.7%, down sharply from 5.3% in the previous quarter and below the government's 5% target. And a recent meeting of top policymakers gave no sign that Beijing is about to take aggressive steps to stimulate the economy.
In China, demand is so weak that consumer price inflation hit an annual rate of just 0.2% in June. At the same time, producer prices are already falling.
According to the UBS note, 60% tariffs would increase deflationary pressure by weakening demand and intensifying price competition. The result would be that domestic producer prices would remain in contraction in 2025 and core consumer inflation would hover around 0%.
This means that headline consumer price inflation could remain around 0.5% over the next two years, up to 1 percentage point lower than the banks' current baseline forecast.
Even before Trump's improved election chances raised the prospect of new tariffs, views of the Chinese economy were already gloomy.
Years of erratic and irresponsible policies, excessive Communist Party control and unfulfilled reform promises have created a Chinese economic impasse characterized by weak domestic consumer demand and slowing growth, says Anne Stevenson-Yang, co-founder of J Capital Research and author ofA Wild Ride: A Brief History of China's Economic Opening and Closingwrote in a New York Times opinion piece in May.
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Sources 2/ https://fortune.com/2024/07/20/trump-tariffs-60-percent-china-trade-war-economic-growth-impact-deflation/ The mention sources can contact us to remove/changing this article |
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