Investing.com– The impending increase in tariffs by the United States on Chinese goods could significantly impact China’s economy, potentially reducing its gross domestic product (GDP) by 1.5% over the next few years, according to ANZ Research.
This projection assumes a tariff hike of up to 60%. Incoming U.S. president Donald Trump, during his election campaign had vowed to revoke China’s most-favored-nation trading status and impose tariffs of over 60% on Chinese imports.
The research draws on insights from the previous US-China trade war (2018-2020), which showed how tariffs strained bilateral trade. ANZ highlighted that the upcoming tariff measures, announced by Trump, echo his earlier policies and are expected to exacerbate trade disruptions.
Since 2018, China has been diversifying its trade partnerships to reduce dependence on the US. By 2023, the share of U.S. imports from China fell to 12.2%, a decline of 5.1 percentage points compared to 2018, ANZ analysts said in a note.
Simultaneously, China expanded trade with ASEAN and Latin American countries. However, this strategy faces limitations as deflationary pressures and overcapacity risks challenge China’s ability to shift exports to other regions, analysts said.
ANZ analysts also caution against currency devaluation as a countermeasure, noting its limited effectiveness in offsetting tariff impacts. A 20% depreciation in Chinese yuan would likely reduce US retail prices by only 4.4%, making this approach less attractive given the potential risk of capital outflows.
With the global supply chain realignment accelerating, ANZ observes that countries like Mexico and Vietnam have become major beneficiaries of China’s investments. However, rising trade frictions threaten to complicate these dynamics further.
ANZ analysts said, while China’s reduced reliance on U.S. trade offers some buffer, the expected tariff hikes are likely to strain its economic growth and trade balance in the near term.