A potential 60% tariff on all Chinese exports to the US could significantly diminish China’s economic growth rate, slashing it by more than half, according to a recent analysis by UBS Group AG. The report highlights the considerable risks Beijing faces, particularly if former President Donald Trump returns to power.
UBS economists project that such tariffs, if implemented, would carve out 2.5 percentage points from China’s GDP growth in the subsequent year. This projection assumes that trade might reroute through third countries, China refrains from retaliatory measures, and other nations do not follow the US in imposing tariffs. The anticipated economic slowdown would stem primarily from reduced exports, alongside declines in domestic consumption and investment.
“While increased exports through and production in other economies could mitigate the impact of heightened US tariffs over time, there remains a looming risk of other countries also raising tariffs on Chinese imports,” noted UBS economists led by Wang Tao.
Exports have been a pivotal driver of China’s economic expansion this year, contributing 14% to overall growth, with the country’s trade surplus hitting a record high last month. However, the burgeoning trade imbalance has provoked criticism from trading partners, prompting several nations to impose tariffs or contemplate measures to address China’s trade dynamics.
The report underscores that Chinese retaliation could exacerbate the repercussions of US tariffs by inflating import costs. Even in the scenario of tariff reductions later on, the pervasive risk and uncertainty of another trade conflict could deter US importers.
UBS forecasts China’s economy to expand by 4.6% next year and 4.2% in 2026 under current conditions. However, these growth estimates would diminish to 3% annually in both years if tariffs are imposed, despite potential government stimuli to counteract their impact. The Chinese government may deploy fiscal measures and ease monetary policy, possibly issuing special treasury bonds to fund these efforts. Additionally, economists anticipate a potential 5% to 10% depreciation of the Chinese currency by the central bank as a strategic response.
In conclusion, UBS’s analysis underscores the profound economic ramifications China could face from heightened US tariffs, underscoring the imperative for strategic economic policies to mitigate potential fallout.
