The Trump trade wars will drastically penalize world economies, including the US, which is contracting. While China’s economy is on track for recovery, it cannot avoid the tariff impact. With the full impact of the Trump tariffs, the worst is still ahead worldwide.
AFTER China’s stimulus measures started in September and intensified in November, their impact has kicked in. At the time, such signs were shot down by the US Council for Foreign Relations ranting on “Who killed the Chinese economy?” They were seconded by editors pledging “there is no end in sight to [China’s] problems.”
In reality, the rally in Chinese stocks since the start of the year led investors to predict that mainland shares will outperform their American peers. In March, CNBC reported quoting analysts, “valuations in China look attractive while concerns are growing about the state of the US economy.”
Today, these worries are escalating as a result of the US trade wars. In the course of President Trump’s first 100 days, the bullish US markets have been undermined by the bullyish White House.
Structural momentum
In the fourth quarter of 2024, China’s economic growth accelerated from 4.6 percent to 5.4 percent with annualized 5.0 percent last year. Before the US tariff wars, China’s economy showed increasing signs of stabilization. Hence, too, the International Monetary Fund’s (IMF) upgrade of China’s GDP growth.
In February, Chinese President Xi Jinping fostered new confidence in economic prospects by speaking at a high-level private sector symposium with China’s tech leaders. In the Government’s Work Report, Premier Li Qiang outlined growth targets, economic stability measures and structural reforms, raising investor, business and consumer confidence. These supportive measures are to be reinforced by moderately loose monetary policy.
Despite substantial external headwinds, the government set a 5 percent GDP growth target for 2025, signaling confidence in the economy’s resilience to offset the tariff wars. Concurrently, the fiscal deficit-to-GDP ratio was raised to 4 percent as policy authorities set a 2 percent consumer price index (CPI) inflation target.
Here’s the bottom line: The expansion of domestic demand is no longer just a cyclical effort. It is not simply a tool to respond to business cycles. It reflects the structural transformation of the Chinese economy away from exports and investment toward greater consumption and innovation.
Raising spending power
Last year, consumer spending contributed nearly 45 percent to China’s economic growth, surpassing investment and exports. The objective is to raise spending power by increasing earnings and reducing financial burdens. Hence, the aim is to create 12 million new jobs and keep unemployment at 5.5 percent. Such goals are vital to the recovery of consumption that’s premised on solid wage development and steadying property market. These initiatives have been coupled with special initiatives to boost consumption.
These efforts are on track. In the first quarter of the year, China’s economy grew by 5.4 percent. The signs of progress were broad. Industrial production growth climbed to 6.5 percent year to year, fueled by both external and domestic demand. Export growth accelerated to 5.8 percent, almost 2.5 times, largely due to exporters frontloading shipments prior to the tariff penalties.
State-sector spending continued to drive fixed asset investment growth. In property markets, contraction continued to narrow, with developers pushing for the completion of unfinished homes. Chinese households are more willing to spend, while companies are increasingly investing.
China’s broad push of “effective demand” is not just classic Keynesianism, however.
Toward cutting-edge innovation
Technological innovation and emerging industries are critical to sustain rising demand. This is why China is increasingly pushing for rapid progress in “new quality productive forces,” especially artificial intelligence (AI).
For some time, the Chinese government has fostered “industries of the future,” including embodied AI, 6G, quantum technology and biomanufacturing. The dramatic rise of DeepSeek without US-style billions of dollars in subsidies reflects the rapidly changing new realities. In 2024, TikTok, CapCut and TEMU were already among the top 10 most popular apps worldwide.
These efforts remain on track, too. In the first quarter, technology progress prevailed with electric vehicles and 3D-printing equipment each soaring to 45 percent year on year, followed by industrial robotics.
In the past few quarters, the gains of the Chinese economy suggest that a virtuous circle of disruptive innovation and effective demand, with the government as the catalytic force, could be in the making. And that’s precisely what the Trump tariffs hope to undermine. The US administration’s record-high 145 percent tariffs on all Chinese imports seek to disrupt, undermine and reverse the recovery of China’s economy.
According to new data, the steep US tariffs have pummeled export orders at the Chinese factories, resulting in the lowest reading since the pandemic years. This was to be expected.
However, the US economy contracted for the first time in three years in the first quarter, thanks to the Trump tariffs. But this is just a prelude. America may be just weeks away from “a mighty economic shock,” as the Economist warns.
Self-destructive tariff wars
According to new data by the IMF, US tariffs could downgrade US growth by a whopping third to 1.8 percent, with a 40 percent probability of a recession. Europe’s largest economies and Japan will suffer even more, with growth almost halved (as evidenced last week). Global growth could plunge to 2.8 percent, which would penalize particularly the most vulnerable economies in the Global South.
Recently, both US Treasury Secretary Scott Bessent and President Trump blinked in the trade war the White House started. But as the US has driven itself to the isolationist’s lonely corner in the international community, no rhetoric can offset the multi-trillion-dollar damage done to the world’s major trading economies and global economic prospects. That and the dramatic loss of credibility are the true achievement of President Trump’s first 100 days.
And yet, the Trump administration has been flirting with a possible fourth round, planning to use tariff negotiations to pressure US partners to limit their dealings with China.
Such a scenario would no longer be just dumb. It could prove lethal to the ailing world economy.
Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (US), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see
https://www.differencegroup.net
This is an updated version of a commentary published by China Daily on April 28, 2025.