BEIJING — On Tuesday, Citi became one of the pioneers among investment firms to revise its growth projections for China, citing escalating trade tensions with the United States as the primary catalyst.
In a rapid sequence of events, U.S. tariffs on a range of Chinese imports have surged by more than 100%, prompting Beijing to retaliate with higher duties and restrictions impacting American businesses.
In light of these developments, Citi analysts adjusted their forecast for China’s gross domestic product (GDP) downward to 4.2% for this year, marking a reduction of 0.5 percentage points. They expressed skepticism about the potential for a resolution between the U.S. and China given the recent escalations.
Natixis echoed this sentiment on Monday, announcing a similar cut in its China GDP forecast from 4.7% to 4.2% for 2025.
Though Morgan Stanley and Goldman Sachs have yet to revise their current 4.5% growth predictions, both firms have raised concerns about the increasing risks that may lead them to adjust their forecasts imminently.
In March, China set an official growth target of “around 5%” for 2025, although authorities cautioned that meeting this goal would be challenging.
“The main issue is that uncertainty for the economy is rising,” stated Hao Zhou, chief economist at Guotai Junan International, in remarks translated by Finance Newso. He highlighted a significant decline in visibility regarding future growth and warned that U.S. tariffs could continue to escalate.
President Donald Trump announced that an additional 50% tariff on Chinese imports will come into force Wednesday, following China’s implementation of a 34% increase on all U.S. goods. As part of an overarching strategy involving multiple countries, the White House confirmed last week that a 34% duty would be applied to Chinese products.
These new tariffs, combined with two prior rounds of 10% increases this year, have brought the total tariffs on Chinese imports to a staggering 104%.
Diminishing impact from new tariffs
A preliminary report from Goldman Sachs suggested that while a single 50% duty increase could potentially reduce Chinese GDP by 1.5 percentage points, a second 50% hike might only lower it by 0.9 percentage points.
According to Goldman, Chinese exports to the U.S. account for approximately 3 percentage points of the country’s total GDP, comprising 2.35 percentage points from domestic value addition and 0.65 from related manufacturing investment.
China’s trade data for March is anticipated to be released on Monday, with first quarter GDP figures set to follow on April 16.
Nomura has adjusted its expectations, projecting a 2% decline in China’s exports this year, a departure from its earlier forecast of stability, as outlined by Chief China Economist Ting Lu in a report on Tuesday.
Nevertheless, he maintained his GDP forecast for 2025 at 4.5%, indicating that the fluidity of the current situation makes accurate assessments of the ongoing U.S.-China trade war’s impacts exceedingly challenging.
This week, China has hinted at possible measures such as interest rate cuts or increased fiscal spending to support economic growth in the near future.
The diminishing impact of the tariffs may also influence Beijing’s strategy, suggesting that the U.S. could be reaching a point of diminishing returns. Yue Su, principal economist for China at the Economist Intelligence Unit, noted via email that “from Beijing’s perspective, the strategic gains of a strong retaliation now appear to outweigh the associated economic costs.”
