How Trump's tariffs will hit China

Higher US tariffs are slowing down China's growth...

The ‘truce’ in the trade conflict between China and the US, initially limited to 90 days, and entailed the reduction of the previously drastically increased tariffs, have brought relief to the financial markets. However, even if the tariffs are not raised again after this period, they will remain significantly higher than before Trump took office. This would significantly reduce trade between the two countries and thus slow economic growth, particularly in China.

This comes at an unfavorable time for China, as exports have recently been an important driver of growth against the backdrop of continued weak domestic demand. If US tariffs on Chinese products settle at a level that is at least 25% higher than at the beginning of the year, around half of bilateral trade could be lost in the medium term, according to estimates based on trade elasticities.

... but China is less dependent on the US than before

However, China has been preparing for a trade conflict with the US for some time. After all, protectionist measures against China were one of the common features of the first Trump and Biden administrations. Exports to the US have also become less important for the Chinese economy due to higher tariff barriers. While these shipments still accounted for over 7% of Chinese GDP in 2006 (five years after accession to the WTO), they declined to less than 3% in 2024. In any case, the importance of foreign trade in relation to overall economic output is declining, as it normal would for a wealthier economy.

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