Trump second term causes Chinese economic slowdown

Republican presidential nominee Donald Trump has said he could impose a 60% tariff on Chinese imports if he returns to the White House, and a new analysis predicted it would drastically slow the world’s second largest economy and send it to the brink of deflation.

Taking into account the effects of Trump’s 2018 China tariffs, economists from UBS offered a simplified model of what a new round would do, assuming that China doesn’t retaliate, other countries don’t match U.S. duties, and some trade is diverted elsewhere.

They estimated that a 60% tariff would slow China’s GDP growth by 2.5 percentage points over the subsequent 12 months. About half of that drag would come from lower exports, with the rest from indirect impacts on consumption and investment.

Stimulus policies from Beijing to mitigate the impact of the tariffs would ease the economic drag to 1.5 percentage points, leading UBS to estimate that GDP growth in 2025 and 2026 may fall to around 3% if the hike is implemented mid-2025. That’s down from the bank’s baseline forecasts of 4.6% and 4.2%, respectively.

“Over time, potentially more exports through and production in other economies can help reduce the impact of higher US tariffs, but there is also a risk of other countries raising tariffs on imports from China as well,” the UBS economists wrote in a note published on Monday. “Moreover, the lingering impact of weaker employment and capex will also weigh on the domestic economy.”

If China retaliates in kind, the economic impact would be harsher, while less severe tariffs would have a smaller effect, the note added.

But just the mere threat of such a tariff hike could still hurt China’s economy. Even if the tariff hike is reduced or avoided, “some damage to the economy would be inevitable as producers and US importers move away from China to avoid the risk and uncertainty,” UBS