FX.co ★ Trump threatens China with 40% tariffs again

Trump fever is back! Economists are losing sleep over the potential tariffs the new US president might slap on Chinese imports. According to Reuters, Washington could introduce tariffs as high as 40% in early 2025. If this happens, the world’s second-largest economy could shrink by 1%.

A Reuters poll conducted between November 13 and 20 among over 50 economists shows a high likelihood of 40% tariffs on Chinese goods. These could be enacted early next year by the administration of President-elect Donald Trump. Experts estimate the probability of this scenario at anywhere between 15% and 60%.

During his campaign, Trump promised sweeping tariffs on Chinese goods as part of his "America First" policy. This alarmed Chinese officials and raised fears about the potential damage to China’s economic growth.

The proposed tariffs are far higher than the 7.5% to 25% duties Trump introduced during his first term. Such a move would make China’s economy more vulnerable, analysts warn. China's ongoing property market slump, debt problems, and weak domestic demand are adding fuel to the fire.

Most Reuters respondents, however, do not expect tariffs as high as 60% to materialize. Such a scenario could spike inflation in the US, experts stress.

Raymond Yeung, ANZ’s chief economist, said that the new White House administration might return to Trump’s original trade plans. Many believe that average tariffs on Chinese goods could climb to between 32% and 37%.

Next year, Chinese policymakers will face challenges despite introducing measures to boost growth. Analysts predict a drop in exports and an increased push to stimulate domestic demand, which was a key driver of China’s economic growth in 2024. Analysts expect US tariffs to reduce China’s growth by 0.5% to 1.0% next year.

Despite the tariff talk, economists have kept their average growth forecasts for China at 4.8% for 2024 and 4.5% for 2025, similar to pre-election estimates. For 2026, they foresee a slowdown to 4.2%.