Trump's trading Broadside puts Chinese economy under heavy pressure

Copyright © HT Digital Streams Limit all rights reserved. Hannah Miao, The Wall Street Journal 4 min Read 06 Apr 2025, 03:30 IST retailers in China had to face the reluctance of consumers over the past year. (Getty Images) Summary China’s reliance on exports leaves it exposed to a trade fight, increasing the interests for its efforts to stimulate domestic consumption. Singapore President Trump’s global tariff blitz adds urgency to one of Beijing’s largest domestic challenges: expenditure at home increases in an effort to rebalance the world’s second largest economy. Even before Trump announced an additional 34% duty on the import of Chinese goods, Beijing promised to strengthen domestic consumption, part of a greater effort to strengthen his economy and keep the growth lane on track. Now, with Trump’s latest stir from the global trading environment, economists say it is more critical than ever for China to find an alternative to export as a driver of economic growth. Last year, the export of nearly one -third of China’s official was 5% growth rate in gross domestic product, the highest percentage since 1997, according to the government’s data. This year, China again set a target for about 5% GDP growth, an ambitious goal that, according to some analysts, will require more muscular government spending. Thomas Gatley and Wei, of the research firm that gave the research firm, wrote after Trump unveiled his tariff plan. ‘Chinese policymakers will need to increase stimulus efforts in response.’ Trump’s tariff package for the liberation day will hit China’s manufacturing sector on various fronts. The new levy, above the earlier duties already imposed by Trump and the then President Joe Biden, will increase the average tariff rate on Chinese imports to about 70%, according to economists. Manufacturers in China are increasingly unable to swallow the costs to keep prices for US buyers attractive. Goods from many countries in Southeast Asia – where Chinese businesses have erected factories over the past few years and importing parts from China – will also be hit with steep charges. More in general, a global growth of Trump’s broad rates seems to be committing demand for Chinese goods from the rest of the world. For an economy aimed at exports such as China, these levies are bad news. Some Wall Street research houses estimate that the announced rates can shave about 1 or 2 percentage points of China’s economic growth rate this year. After China returned on Friday with a new 34% rate of all US goods and other retaliation measures, a quick solution to the tightened trade war between the two countries seems to be the more unlikely, while Trump says China played it wrong. China’s quick response to rates “Indicate that efforts to strengthen domestic economic activities will be fast,” says Rory Green, China chief economist at TS Lombard. “We think the domestic demand can provide a compensation of the export hit.” China has fueled its fast -growing economy for decades by plowing money into manufacturing and infrastructure. But the strategy looks risky like the US and other countries erect trading barriers for Chinese goods. It has China’s leaders looking for other ways to hug the economy. Government advisors and economists from the outside, also at the World Bank and the International Monetary Fund, have long called for Beijing to move his economy to one more driven by consumption, closer to that of the US, has met such advice with a lukewarm receipt of Chinese leader Xi Jinping, which continued to prioritize his to build. As the resistance to Chinese exports grew and economic growth came under pressure, Chinese policymakers declared last month that the promotion of domestic consumption was now the priority. Economists believe China’s domestic demand was poor because households are more concerned about the future. After decades of runaway economic growth, many people have seen an epic real estate market strike the value of their nest eggs. Consumers, who are concerned about job losses and an increasingly sluggish economy, have become more reluctant to spend over the past few years. Business owners are also in cost-saving mode, as many struggle with shrinking profit margins. In addition to improving consumption, Beijing has relatively few levers to respond to Trump’s new rates. The weakening of China’s currency is a response that Beijing used during Trump’s first term to make exports cheaper and strengthen foreign demand for Chinese goods. But Beijing will be reluctant to greatly appreciate his currency this time, says economists, because it would attract further IRe of the US president and probably drive more capital out of China – which will create a broader instability in the country’s financial system. According to economists, more likely options include reducing interest rates, increasing the purchases of bonds to increase liquidity and increase fiscal expenses to try to increase the domestic economy. This year, China’s central bank and finance ministry has already sent loose signals, such as adjusting a price method to lower the borrowing costs for banks and to inject money into the country’s largest borrowers. Policymakers are expanding a goods trade-in program to promote consumer spending, which allocates the equivalent of about $ 40 billion in effects to such initiatives this year. The sales of home appliances and other consumer goods have picked up accordingly, according to official figures. Last month, China issued a policy plan to expand domestic consumption, including raising wages, increasing pensions, creating incentives for childbirth and stabilization of the equity and real estate markets. Although policymakers have so far provided few details on how the initiatives would be carried out, economists and government advisers have long called for Beijing to expand social services for households, such as more support for China’s millions of migratory workers, who currently have limited access to health care and education. The Top Policing Body of the Communist Party, the 24-man Politburo, will meet this month, giving the opportunity to announce details or additional stimulus measures. Catch all the business news, market news, news reports and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More Topics #Trade War Mint Specials