Exports Decline Due to 60% Tariff... Consumption and Investment Also Hit
Global investment bank UBS stated that if the United States imposes an additional 60% tariff on all Chinese imports, China's annual growth rate is expected to be cut in half.
On the 15th (local time), Bloomberg cited UBS research results and reported that if former U.S. President Donald Trump succeeds in his re-election, China could face such risks.
Former President Trump announced earlier this year that he is considering imposing a 60% tariff on all Chinese imports if elected. According to UBS economists' research, applying such measures is expected to reduce China's Gross Domestic Product (GDP) by 2.5 percentage points.
The Chinese government announced that China's economy grew by 5.2% in 2023. The target for this year is about 5%. This means economic growth would be halved.
UBS predicted that half of the GDP decline would come from reduced exports, while the rest would result from impacts on consumption and investment sectors. This assumption is based on some imports being re-exported via third countries, China not engaging in trade retaliation, and other countries not imposing tariffs in solidarity with the U.S.
Wang Tao, UBS economist, said, "Over time, increased exports through other countries and production in other countries may help mitigate the impact of U.S. tariff hikes, but there is also a risk that other countries may raise tariffs on Chinese imports."
Exports are a strong growth driver for the Chinese economy, but excessive export strength is causing dissatisfaction among trade partners. A recent example is the high tariffs imposed by the U.S. and Europe on Chinese electric vehicles. More countries are considering cards to offset trade imbalances, such as imposing tariffs.
China engaging in trade retaliation is not a solution. The report forecasted that if China retaliates, it could increase import costs, further amplifying the impact of tariffs. Even if tariffs decrease in the event of another trade war, U.S. importers may withdraw.
UBS analyzed that if former President Trump succeeds in his term, the Chinese government may use fiscal measures to mitigate the impact of sharp tariff increases and may ease monetary policy. It is highly likely that special government bonds will be issued to raise funds for this purpose. It also wrote that the People's Bank of China could devalue the currency by 5-10%.
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