President Donald Trump's latest tariff hike on Chinese goods comes at a precarious moment for Beijing, threatening to deepen the country's economic struggles as it fights to stabilize the world's second-largest economy.
Newsweek has reached out to the Chinese Embassy in the U.S. by email with a request for comment.
Why It Matters
On Tuesday, Trump doubled his blanket tariff on Chinese goods to 20 percent from 10 percent, adding to hundreds of billions of dollars in tariffs imposed during his first term.
The trade war, initially launched over perceived unfair trading practices, has reignited tensions between the two powers. China returned fire with 10- to 15-percent tariffs on a range of U.S. agricultural and farm products.
What to Know
The White House cited the flow of the deadly opioid fentanyl as justification for the new tariffs. Trump also slapped 25-percent tariffs on Canada and Mexico, prompting counter charges from Canada and a pledge from Mexico to respond on Sunday.
The move comes at a sensitive time for China. The country's rubber-stamp parliament, the National People's Congress (NPC), is holding its annual meeting this week, with economic concerns front and center.
China has again set a 5-percent GDP growth target for 2025, but the economy continues to struggle under a prolonged property market slump. Real estate accounts for up to 70 percent of household wealth, yet housing prices have yet to bottom out, leaving many Chinese consumers concerned about the future and more likely to save than spend.
While Beijing has scaled back state investment in the property sector, it continues to heavily subsidize manufacturing, prompting accusations of overcapacity from the U.S. and other countries—including some of China's allies.
Exports, still critical to China's economy, may take a hit as tariffs make Chinese goods more expensive for U.S. importers—a cost typically passed on to consumers.
In a November report, JPMorgan's Asia Investment Strategy Team noted that while the U.S. accounts for only 15 percent of China's exports, it remains China's largest trade partner. Exports to the U.S. make up about 4 percent of China's GDP, meaning a sharp decline in demand could have ripple effects across the economy.
"If the U.S. dramatically reduces demand for China-produced goods, and cuts off paths for transshipment, it would undeniably have a meaningful impact," the report stated.
For U.S. consumers, the tariffs add to the rising cost of Chinese goods, following similar tariffs imposed last year by the European Union on China-made vehicles, citing overcapacity and alleged unfair subsidies.
If China is unable to quickly redirect exports to other markets, fewer sales in the U.S. could hit Chinese firms' bottom lines, leading to layoffs, weaker spending, and a further decline in consumer confidence.
Chinese Premier Li Qiang, tasked with steering China's economic policy, last month called for stronger, more targeted measures to stimulate growth. It remains to be seen how much of that will emerge from China's "Two Sessions" congress this week.
Deflation Concerns Grow
China's post-pandemic economy has been battling deflationary pressures, making consumers hesitant to spend—a slowdown that, in turn, drives prices down further, fueling what economists call a "deflationary spiral."
Despite announcing a long-awaited stimulus last year, Beijing focused mainly on shoring up indebted local governments and state-led investments, with little direct support for consumer spending.
Erica Tay, director of macro research at Maybank Investment Banking Group, warned that the new 20-percent tariff rate could knock as much as 1.1 percent off China's GDP growth in a "severe scenario" where exports to the U.S. drop by half.
What People Are Saying
He-Ling Shi, an associate professor of economics at Monash University in Australia, told The Associated Press: "When the real estate market is booming, people believe that they are very rich. If people believe that they're rich, they tend to spend their income on consumption. But with the decrease in the price of housing in most parts of China, people believe that they're no longer as rich as before, so (...) they want to increase their savings and reduce their consumption."
Chinese economist David Daokui Li told Bloomberg Monday: "The overall attitude from the top in China is super clear: boosting consumption, private consumption, is job number one. Even more important than harnessing China's capacity of innovation.
"And second, this policy indication may not be all reflected in the forthcoming government work report. It will be fleshed out in the whole year, when there's not enough outcome from these policies—there will be more."
S&P Global, wrote in January: "China's economy faces uncertainty as U.S. tariffs hit; S&P Global sees GDP growth slowing to 4.1 percent in 2025 (...) China's stimulus measures should support economic growth, but we expect its economy to be hit by U.S. trade tariffs on its exports."
What's Next?
Though Beijing's Foreign Ministry struck a defiant tone over the tariffs—declaring that it is prepared to "fight to the end" if threatened with any war, trade or otherwise—some China watchers have suggested the relatively modest retaliatory measures so far suggest Chinese leader Xi Jinping is holding out for a grand deal with Trump.
Newsweek