In a move that’s sure to stir the economic waters, Republican presidential nominee Donald Trump has floated the idea of imposing a staggering 60% tariffs on China imports if he makes it back to the White House. According to a new analysis, such a drastic measure could significantly hamper the world’s second-largest economy, potentially pushing it to the brink of deflation.
Drawing from the impacts of Trump’s 2018 tariffs on China, economists from UBS crafted a model to predict the outcomes of a new tariff round, assuming that China doesn’t retaliate, other nations don’t mirror U.S. duties, and some trade is rerouted elsewhere. Their findings are stark: a 60% tariff could slash China’s GDP growth by 2.5 percentage points over the following year. About half of this slowdown would result from diminished exports, with the remainder stemming from indirect effects on consumption and investment.
To mitigate the tariffs’ impact, Beijing might roll out stimulus policies, which UBS estimates could reduce the economic drag to 1.5 percentage points. This adjustment could see China’s GDP growth drop to around 3% in 2025 and 2026, down from the bank’s baseline forecasts of 4.6% and 4.2%, respectively.
“Over time, potentially more exports through and production in other economies can help reduce the impact of higher US tariffs, but there is also a risk of other countries raising tariffs on imports from China as well,” UBS economists noted. They also warned of the lingering effects on domestic employment and capital expenditure, which would further weigh down China’s economy.
Should China retaliate with its own tariffs, the economic blow would be even more severe. Conversely, smaller tariffs would yield a less dramatic effect. However, UBS cautioned that even the threat of such a significant tariff increase could harm China’s economy. Producers and U.S. importers might start shifting away from China to dodge the risks and uncertainties, inflicting some damage regardless of whether the tariff hike is fully realized.
China’s economic landscape is already troubled. The nation is grappling with a property market crash, weak domestic demand, substantial local-government debts, and new trade restrictions from the Biden administration. In the second quarter, China’s GDP grew by 4.7%, a noticeable drop from the previous quarter’s 5.3% and below the government’s 5% target. Recent meetings of top policymakers have shown little indication of forthcoming aggressive economic stimulation from Beijing.
Consumer demand in China has been so tepid that inflation hit an annual rate of just 0.2% in June, while producer prices are already declining. UBS analysts suggest that the proposed 60% tariffs would further exacerbate deflationary pressures by weakening demand and intensifying price competition. They predict that domestic producer prices could remain in contraction in 2025, with core consumer inflation hovering around 0%. Consequently, overall consumer inflation might stagnate at around 0.5% for the next couple of years—up to a full percentage point lower than UBS’s current forecasts.
Even before the specter of new Trump tariffs loomed, the outlook for China’s economy was dimming. Years of erratic policies, excessive Communist Party control, and unfulfilled promises of reform have left China with weak domestic consumer demand and slowing growth. As Anne Stevenson-Yang, co-founder of J Capital Research, highlighted in a New York Times op-ed, “Years of erratic and irresponsible policies, excessive Communist Party control, and undelivered promises of reform have created a dead-end Chinese economy of weak domestic consumer demand and slowing growth.”
In summary, the proposed 60% tariffs by Donald Trump, if implemented, could spell serious trouble for China’s economy, exacerbating already existing issues and potentially leading to significant deflationary pressures. The global economic landscape would undoubtedly feel the ripples of such a bold move, with wide-reaching consequences for international trade and economic stability.
