Tariffs could impact GDP by over 2%: Chinese economist

Trade Tremors | China's exports to the US, its third largest market, amounted to $438 billion last year against its imports of $143 billion from the US

K J M Varma Beijing

The new set of 34 per cent tariffs imposed by US President Donald Trump on Chinese exports could impact China's GDP by two to 2.5 percentage points, further affecting the Chinese economy which is struggling with slowdown, a top Chinese Economist said.

Larry Hu, chief China economist at investment bank Macquarie, estimated that Trump's latest tariffs could reduce China's exports by 15 percentage points and its gross domestic product growth by 2-2.5 percentage points.

"The impact could manifest itself through multiple channels such as falling US demand for Chinese goods, the potential global economic slowdown and the hit on export re-routing," Hu wrote in a research report, the Hong Kong-based South China Morning Post reported on Monday.

China this year has fixed a five per cent GDP target for its economy which is struggling with a slowdown weighed down by stagnating domestic consumption and a crisis in its housing sector. With the latest 34 per cent tariffs, Trump's levies on Chinese exports amounted to 54 per cent. This is in addition to about 15 per cent tariffs imposed during Trump's previous term. His successor Joe Biden has retained Trump's tariffs.

Furthermore, Trump ended the duty-free exemption for China's small parcel exports, which amounted to USD 30 to 50 billion annually. Consequently, China's exports, a major driver of economic growth, are poised for a sharp decline, the Post report said. China's exports to the US, its third largest market, amounted to USD 438 billion last year against its imports of USD 143 billion from the US.

Trump slapped tariffs on Chinese goods accusing China of failing to curb the flow of raw materials to manufacture fentanyl, a potent opioid drug blamed for widespread drug addiction in America. China for its part retaliated with 34 per cent tariffs against US exports to China targeting the agricultural goods affecting the American farmers in a tit-for-tat retaliation.  

Beijing also imposed export control measures on certain rare earth metals aimed at hitting high-tech American defence, computers and smartphone industries. Trump's extreme measures could compel Beijing to undertake long-awaited efforts to rebalance its economy by further stimulating domestic demand, veteran Chinese commentator and columnist Wang Xiangwei said.

This is a priority, the leadership acknowledged publically but has been slow to prioritise, he wrote in his column in the Post on Monday. This reluctance is tied to China's economic management philosophy, in place since the modern founding of the country in 1949, which emphasises a development model prioritising industrial output over living standards and capital investment over consumer spending.