UBS Group AG’s latest research shows that imposing a 60% new tariff on all Chinese imports by the United States would reduce China’s economic growth rate by more than half. This indicates that if Trump successfully returns to the White House and imposes tariffs on China again, the Chinese Communist Party (CCP) may face immense pressure.
Earlier this year, Trump mentioned considering imposing a uniform 60% tariff on Chinese imports. JD Vance, Trump’s running mate announced on Monday (July 15) has also urged for imposing “broad-based tariffs” on Chinese goods and advocated for bringing manufacturing back to the United States to reduce dependence on China.
According to a report published by UBS economists on Monday (July 15), if Trump implements the new tariffs, China’s GDP for the following year would decrease by 2.5 percentage points.
This prediction is based on assumptions such as some trade being diverted through third countries, the CCP not taking retaliatory measures, and other countries not joining the United States in imposing tariffs. China’s economic growth shrinking by half is attributed to declining exports and impacts on consumption and investment.
The UBS report points out that over time, as more exports are redirected to other economies and production gradually moves to other countries, the impact of the increased tariffs by the United States may be mitigated. However, China still faces the risk of other countries imposing tariffs.
If the CCP takes retaliatory action, it could exacerbate the impact of tariffs by raising import costs.
In the event of another US-China trade war, even if the tariffs are eventually reduced, the risks and uncertainties alone could lead to US importers withdrawing from China.
Currently, UBS predicts that China’s economic growth rate will be 4.6% next year and 4.2% in 2026. Analysts estimate that if Trump is re-elected and imposes tariffs, even if the CCP takes stimulus measures to offset the tariff impact, the growth rate for these two years could drop to 3%.
The report suggests that the CCP may implement fiscal measures and loose monetary policies to alleviate the sudden increase in tariffs, potentially through issuing special bonds. By then, the renminbi may depreciate by 5% to 10%.
Amid sluggish domestic demand, uncertain employment prospects, and a stagnant real estate industry, the Chinese economy still heavily relies on manufacturing and exports.
Last month, China’s exports showed the fastest growth in 15 months, while imports unexpectedly declined, falling far short of economists’ predictions. With the decline in imports, China’s trade surplus in June reached a record high of $99.05 billion. Among them, China’s trade surplus with the US was $31.78 billion, nearly $23 billion with the EU, and $17 billion with ASEAN.
The US has repeatedly emphasized that trade surpluses are evidence of trade skewed in China’s favor. The widening imbalance has sparked criticism from trading partners and may intensify concerns about China’s overcapacity.
Earlier this week, ANZ’s senior China strategist Xing Zhaopeng commented in a report, “With the rise of trade protectionism, the outlook for the second half of the year is unfavorable for China’s export-driven economic growth.”
The EU has confirmed that it will impose a maximum anti-subsidy tariff of 37.6% on Chinese electric cars. Last month, Turkey announced an additional 40% tariff on Chinese electric cars, while Canada indicated it is considering similar restrictive measures.
Meanwhile, Indonesia plans to impose a 200% import tariff on Chinese textiles. India is monitoring China’s cheap steel, with Indian steel producers urging for higher tariffs on Chinese steel products.
To prevent a large influx of low-end chips from China into the European market, the EU has begun soliciting opinions from the semiconductor industry on China’s expansion of traditional chip production processes, planning to formulate countermeasures in advance.
Last week, the US and Mexico jointly announced new measures to curb China from using Mexico as a bypass to export steel and aluminum products to the US, further keeping cheap Chinese metal production out of the US market.
(Partial reference to reporting by Bloomberg)