Trade restrictions were up an astounding 114 times. During the US-China trade war, both the United States and China used sweeping tariffs as a warfare tool on one another’s products. China’s retaliatory tariff on US imports has risen to a staggering 142%. In contrast, the US has raised its own retaliation against the Chinese to 157%. This intensifying conflict threatens to stifle economic growth in both nations, with experts forecasting that the existing tariff rates could reduce China’s GDP growth by approximately 1.8 percentage points.
These latest rounds of retaliatory tariffs are being implemented against a worrying global economic backdrop. Standard Chartered’s economists highlighted the implications of these new tariff levels, stating, “Over the past week, the US and China have announced sweeping tariffs in multiple rounds of retaliation. As of now, China’s tariff on US products has jumped to 142%, and the US’ tariff on China has surged to 157%, according to our estimate.”
As trade war escalates, the possible consequences for China’s economy are more and more obvious. The effect of the current tariff rates is expected to pull down China’s GDP growth by about 1.8 percentage points. This is the gist of what Standard Chartered’s economists told major emerging markets. They project that the effective tariff rate will lower China’s GDP growth by about 1.8 percentage points. We acknowledge the downside risk to our estimate from a possible global recession. This might threaten domestic jobs, consumption, and investment. Yet, at the same time, we recognize some positive mitigating factors in the mix.
In response to these challenges, China is actively exploring new export destinations to diversify its trading partners and reduce reliance on traditional markets. By actively looking for new markets, Chinese exporters hope to offset the negative effects of US tariffs. At the same time, China is under pressure to lower its import dependence across the board. Such an action would certainly improve their trade balance the higher the tariffs go.
Even with all of these efforts, the economic outlook is still severely mixed. The massive tariffs that each country has put into effect have wreaked havoc on their economies. This is why economists are ringing the alarm. They caution that the current trade dispute threatens to undermine growth in both nations and contribute to uncertainty in the global economy.
Given all that’s happened, the calls for more fiscal stimulus in China have increased. Experts estimate that a further fiscal stimulus package ranging from CNY 1.5 to 2.0 trillion is necessary to support economic growth. This new funding might amount to as much as 1.0-1.5% of China’s GDP. This dramatic figure further illustrates the immediate importance of government action given the state of falling growth projections.
“China and the US appear to be locked in a high-stakes game, with the near-term prospect of either side backing down before economic pain is inflicted looking dim. We see downside risks to China’s growth but believe that the government will roll out more stimulus to prevent growth from significantly undershooting its 5% growth target.” – Standard Chartered’s economists
As the trade war continues, commodities such as gold have become increasingly attractive to investors seeking safe-haven assets amid heightened uncertainty. Gold prices have skyrocketed to a historic high of over $3,220. With the current dramatic shifts in capital markets, investors are trying to lock in their wealth.
Additionally, currency markets continue to show clear signs of an ongoing reversal in investor sentiment. The EUR/USD cross rate has shot up even further, rising to its highest point since February 2022, above 1.1400. This kind of movement shows us the shifting dynamics in foreign exchange markets as traders start to adjust to the consequences of ever-increasing tariffs.