China's Economic Outlook Dimmed as Trump Set to Impose 40% Tariffs by 2025

According to a Reuters poll of over 50 economists conducted between November 13-20, the U.S. under President-elect Donald Trump could impose tariffs on Chinese imports nearing 40% by early 2025. This potential move is expected to significantly impact China's economy, with forecasts suggesting a reduction in growth by up to 1 percentage point. While a substantial majority of economists foresee tariffs in the range of 32-37%, there is less consensus on the possibility of blanket 60% tariffs, as this could trigger higher inflation in the U.S.

Trump’s campaign promise to levy high tariffs on Chinese goods is expected to be part of his broader "America First" trade policy. Though his tariffs during his first term ranged from 7.5% to 25%, these new tariffs would be considerably higher, raising concerns in Beijing. At the same time, China’s economy is facing multiple vulnerabilities, including a prolonged property downturn, high debt levels, and weak domestic demand, which could exacerbate the impact of such measures.

China’s policymakers, who have already implemented stimulus measures since late September to support growth, will face even more pressure to boost domestic demand in the face of declining exports. The Reuters poll suggests that the new tariffs could lead to a slowdown, with Chinese growth forecasted to dip to 4.5% in 2025, down from 4.8% this year. In the longer term, China’s growth is expected to decelerate further to 4.2% by 2026, though economists are closely monitoring how Trump’s trade policies will shape the economic outlook.

Despite these challenges, economists largely maintain their 2025 growth forecasts at 4.5%, although they expect potential downward revisions based on the evolving U.S. trade policies. Exports, one of China’s key economic drivers this year, may struggle due to the tariff increases, but infrastructure investment could provide some support to the economy.

Most of the economists polled also expressed skepticism about the effectiveness of China’s current fiscal and monetary stimulus measures, with 19 out of 23 respondents anticipating that further stimulus will be necessary. Only a small minority believes that the recent policy efforts will be sufficient to boost economic growth. As such, analysts expect more stimulus initiatives in the near future, as Chinese authorities work to cushion the economic impact of the tariffs and sustain growth amid these external pressures.

In response to these economic challenges, the People's Bank of China is expected to lower its key policy rate in early 2025. Economists forecast a 20-basis-point reduction in the seven-day reverse repo rate, with a further 10-basis-point cut in the latter half of the year. This would be part of the broader policy toolkit aimed at managing the economic slowdown and countering the effects of the trade tensions with the United States.