Wall Street is lowering their growth expectations for China, as fears of trade war with the United States continue to soar. Goldman Sachs just lowered its growth forecast for China to 2.9%. This move follows Chinese tariffs skyrocketing to 104% at their peak. China’s economic landscape has gotten shakier by the day as well. Companies have been left reeling, trying to inadvertently navigate the repercussions of continued spatting amidst the two countries.
Goldman Sachs estimated that the effective high U.S. tariff rate will bite hard in 2025. They project it will reduce China’s GDP growth by roughly 2.2 percentage points. All of this stands in sharp contrast to China’s official growth target for the year, which is “about 5%.” As our experts have cautioned, raising this target to $60 billion will certainly not be an easy task, especially considering the current geopolitical conditions.
Hao Zhou, chief economist of Guotai Junan International, recently went as far as to call the situation “alarming.” He cited increasing uncertainty about the direction of China’s economy. He noted that transparency into long-term growth has plummeted. This has resulted in an unstable landscape for companies and investors alike.
“The main issue is that uncertainty for the economy is rising,” – Hao Zhou, chief economist at Guotai Junan International.
As the trade war deepens, the threat of additional rounds of tariffs hike continues to hang in the air. Zhou warned that U.S. tariffs are likely to keep increasing, adding an even greater obstacle to the already damaging U.S.-China economic environment. He noted that the current trade war has dire effects. It’s getting more and more difficult to gauge what its net effect is having on China’s economy.
Goldman Sachs analysts caution that increasing the tariffs to 50% at the outset would be enough to send China into recession. They estimate that it might reduce Chinese GDP by 1.5 percentage points. A follow-on 50% increase would lead to a 0.9 percentage point smaller decrease. These changes to expected growth projections signal deeper worries about what these rising tensions would mean.
Meanwhile, Natixis has revised its forecast for China’s GDP growth, reducing it from 4.7% to 4.2% for the year. This rowback is just a reflection of the widening pessimism surrounding China’s economic future, especially in light of worsening relations with major trading partners.
U.S. President Donald Trump, reciprocating with additional tariffs of his own, recently announced a new 50% tariff on all Chinese products entering the U.S. In retaliation, Beijing has increased tariffs on all U.S. goods by 34 percent. This action is a clear indication that both countries are prepared to take their trade battles to new heights.
Yue Su, principal economist for China at the Economist Intelligence Unit, pointed to the diminishing returns of tariffs. She argued that this change would encourage Beijing to reconsider its strategic alternatives. He added that this might just reflect an understanding that the peak of U.S. leverage is coming soon.
“From Beijing’s perspective, the strategic gains of a strong retaliation now appear to outweigh the associated economic costs,” – Yue Su, principal economist, China, at the Economist Intelligence Unit.
Analysts at Citi have weighed in on the situation, stating there seems to be “little scope for a deal between the U.S. and China after recent escalations.” This viewpoint is indicative of a wariness towards any possible solution to this nearly three-year-long trade spat.
Concerns over growth-related uncertainty and an impending growth slowdown have sounded warning bells within China. Global investors are equally intently focused on these developments. The changing nature of the trade relationship still presents uncertainty about future economic stability and recovery.
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