US’s 60% tariffs may slash China’s GDP in ’25 – UBS warns
UBS Group AG warned in a report released on Monday that imposing a 60 per cent tariff on all Chinese exports to the US, as previously proposed by former President Donald Trump, could reduce China’s GDP by 2.5 percentage points in the next year.
This would pose a significant challenge to Beijing’s target of achieving five per cent growth in 2024, after a 5.2 per cent expansion in 2023.
The UBS forecast assumes that trade may be redirected through third countries, China will not retaliate, and other nations will not impose tariffs along with the US.
Notably, the report estimates that half of the negative impact would be from reduced exports, while the remainder would come from decreased consumption and investment.
UBS economists, led by Wang Tao, warned that while increased exports and production in other economies could mitigate the impact of higher US tariffs over time, there is a risk of other countries reciprocating by raising tariffs on Chinese imports.
China’s robust export sector has been a major driver of growth in 2024. Net exports currently account for 14 per cent of the economy’s expansion, and the trade surplus reached a record high last month.
However, this export strength has drawn criticism from trading partners, leading to more countries implementing tariffs or considering measures to address China’s increasingly unbalanced trade activity.
UBS forecasts China’s growth to slow down to 4.6 per cent in 2025 and 4.2 per cent in 2026. Even with stimulus measures to counteract the effect of tariffs, these figures could plunge to three per cent for both years, according to the report.
The report recommends that the government could use fiscal measures and a more relaxed monetary policy to lessen the effects of a significant tariff increase.
This could involve issuing special treasury bonds for funding, and the Chinese central bank might consider allowing the yuan to depreciate by five per cent to 10 per cent according to UBS economists.
Attribution: Bloomberg
