New tariffs of 60% on all Chinese exports to the US would more than halve China’s annual growth rate, according to new research from UBS Group AG, underscoring the risks for Beijing if former President Donald Trump returns to the White House.

Trump was reported earlier this year to be considering a flat 60% tariff on Chinese imports. If that happened, it would cut 2.5 percentage points from China’s gross domestic product in the year that follows, according to a report from UBS economists published Monday (July 15). Beijing is seeking to reach about 5% growth this year after the economy expanded 5.2% in 2023.

The forecast is based on the assumption that some trade is diverted via third countries, China doesn’t retaliate and other nations don’t join the US in imposing levies. Half of that drag would come from the drop in exports, while the rest would be from the hit to consumption and investment, they wrote.

“Over time, potentially more exports through and production in other economies can help reduce the impact of higher US tariffs, but there is also a risk of other countries raising tariffs on imports from China as well,” the economists led by Wang Tao said.

Exports have been a strong growth driver this year, with net exports accounting for 14% of the economy’s expansion so far and the trade surplus rising to a record last month. But the strength of exports has prompted complaints from trade partners, with more countries imposing tariffs or considering steps to counter the increasingly unbalanced nature of China’s trade.

Chinese retaliation could also raise the impact of the tariffs as it would push up import costs, the report said. In the event of another trade war, the risk and uncertainty alone could drive away US importers even if the tariffs are eventually reduced.

UBS forecasts China to expand 4.6% next year and 4.2% in 2026. That rate would be reduced to 3% for both years even with stimulus to counteract the effect of any tariffs, they estimated.

The government may use fiscal measures and ease monetary policy to mitigate the impact of a drastic tariff hike, with funding likely to come from issuing special treasury bonds, the report said. The Chinese central bank may let the currency depreciate 5% to 10%, the economists wrote.

  - Bloomberg