China’s economy recorded a surprising growth rate of 5.4% year-on-year in the first quarter of 2023, outperforming many economists’ expectations of 5.1%. This trade data is a glimpse at the world before the Trump Administration raised tariffs on Chinese imports to historic heights. The tariffs then jumped from 10% to an all-time high of 145%. The country is bracing for the impact of these tariffs. In the meantime, observers are rightly concerned with how this might change the economic landscape in China.
China’s once-booming economy is slowing to a crawl. This perfect storm of a conundrum comes at a time that see China facing a potential permanent trade war with the United States. This long-standing trade war marked by tariff retaliations by both countries has put into grave doubt the potential for any economic prosperity going forward. U.S. tariffs on a wide range of Chinese goods have jumped to an eye-popping 145%. Here’s hoping in the months to come we don’t feel the pinch of this trade dispute’s fallout too severely.
Chinese President Xi Jinping is currently visiting Malaysia as part of a broader tour across Southeast Asia, aiming to bolster alliances with key trading partners amid the tumultuous backdrop of U.S.-China relations. This diplomatic flurry is intended to lessen the pain felt by the unilateral nature of the trade war. Equally important, it conveys a clear signal to foreign markets that China is serious about developing mutually beneficial trade partnerships.
Given today’s economic climate, a recessionary horizon has cast a shadow over 2023’s second half. Analysts have warned that the effects of these tariffs are sure to flow through to lower business investment and production. Noting the timing of those tariff impacts, economist Louise Loo emphasized that,
“That is when shipments in transit start getting the full treatment of tariffs, translating to a pullback in business investments and production.”
Yet, against this backdrop, China’s first quarter growth figures have surprised on the upside. This very surprising performance stands in stark contrast to all those economic forecasters who predicted a fall below 4% in the following quarters. It is a major break with Beijing’s widely-cited official growth target of about 5%. Stephen Innes, an economic analyst with MM Group, commented on this difference:
“With forecasts dropping below 4% for the next few quarters, that’s a steep cliff from Beijing’s official 5% growth target.”
Some industries in the Chinese economy—including pharmaceuticals and semiconductors—used to be exempted from the tariffs. Recently, we’ve seen signs that the Trump administration could soon turn its attention to these industries as Tariff Targets too. This possible widening of tariffs would only add to the mounting domestic and external pressure being placed on China’s fumbling economy.
China, too, is sailing through stormy seas. Yet it needs to counterbalance its growth intentions amid global trade wars and shifting marketplace fundamentals. The unexpected growth rate reported for the first quarter may provide a temporary respite, but many experts caution that the full impact of U.S. tariffs will soon manifest and could hinder economic progress in the near future.