China’s economy is facing a major downturn due to persistent trade disruption and a decades-long property market collapse. Tariffs that the United States imposed in 2018 under former President Donald Trump have further inflamed the situation. These tariffs have been devastating for U.S.-China trade relations.
The trade war, which has been characterized by cyclical retaliatory tariffs, has spiraled into a 145% US tariff on Chinese imports. In retaliation, China put a tariff of 125% on specific US products. This tit-for-tat exchange has deepened economic uncertainty and helped supply-side factors to slow national GDP growth rates. In the second quarter of this year, China’s economy grew by 5.2%, a decrease from 5.4% in the previous quarter. For that reason, economists today are laying bets that China will not hit its annual growth target of somewhere close to 5%.
Despite these obstacles, China has managed to avert a hard economic landing. This resilience is in large part thanks to encouraging steps Beijing has announced. These initiatives aim at figuring out how to stabilize that growth. They respond to the trade war’s impact on the economy and address domestic issues within the real estate industry.
Throw in the fragile truce in tariffs with China that complicates matters and it’s a whole new ball of wax. During multiple rounds of tariffs, the US has charged heavy tariffs on imports from China. It has similarly gone after other countries that have significant economic ties to China’s. Analysts are keeping a close eye on these developments. At most, some experts find it politically acceptable that China will defend a growth floor of 4% with great zeal.
Dan Wang, director for China at consultancy Eurasia Group, commented on the economic outlook, emphasizing the uncertainty surrounding future growth.
“The real question is by how much. We believe it will defend a floor of 4%, which remains the minimum politically acceptable level.” – Dan Wang
Looking ahead, the potential reward is great – but so too are the stakes. Necessary to achieve this end, President Trump has laid down an arbitrary deadline for these negotiations, demanding that China finalize an agreement in principle by August 12. Given China’s current delicate economic situation, the direction of these debates will be crucial in shaping China’s economic path in coming years.