China Tariffs

There’s a lot of interest in the impact of the US reciprocal tariffs of 125% on China. If you’re reading this from China, it’s not a rosy outlook for your country. And the tariff is just one reason.

Unfortunately, the massive trade deficit with China and other nations has left the US with a national debt of $36.6 Trilion, a trade deficit beyond a $1 trillion and interest on debt payments that threaten to push it into bankruptcy.  The official trade deficit amount over the last 25 years with China is well over $2 Trillion. But as you’ll read below, that’s just the direct to USA amount. Chinese products have been entering the US via the other countries.

Added to the consternation of President Trump and concerned Americans, is that the US has seen trillions in investment money leave the US for China. This includes the savings of Americans and holdings of US corporations.

President Trump wants to deal with all of this, hoping for one sweeping bill to be passed in the US senate. His goal is to detach from trade with China and bring back jobs to the USA. The China tariffs should help with that.

Economists have been chronically glowing about China’s economic forecast and continue so even with the visible impact of the US tariffs on China. But statistical evidence doesn’t back up their perspectives and projections. The fact is, China is hurting and facing crises on many fronts. Much of it hasn’t been exposed by the American media, who would prefer the US return to the Biden-era trade arrangements. They’re deeply Pro-China and angry. Some lost a lot of money as avid China investors.

Over the past month, we’ve gotten a muddied impression of the daily things that President Trump is planning to do.  He has been explicit about the need for tariffs, lower taxes, lower FED rate, US debt and trade deficit along with the need to bring back capital investment and reindustrialization.

However his executive orders and social media statements are causing the stock market to whipsaw in confusion while freezing business decisions.  The markets were back up today, although for an unrelated matter. It’s not simple for stock market forecasts for next week, 6 months or the longer term.

Only he knows what he’s doing and when he’s going to do it.

And it looks like a lot of it he’s doing to China.  Do they deserve the rough treatment?  I guess it depends on your political and economic viewpoint. There’s no doubt the US has suffered in the last twenty years due to the trade deficit with this country.  For some, this split with China heralds in a golden era for American freedom and properity. For others, it’s the loss of a fortune invested in the Great China revolution and the commissions they were receiving.

Understanding Trump

With each statement Trump makes, he’s been attacked mercilessly by the Democrat media networks but it hasn’t held him back much. His actions and intentions are persistently twisted in interpretation thus causing Americans angst.

While Trump wants to reduce foreign goods dependence from all countries, we’re getting a clearer picture that it is China imports that he’s prioritizing. Yes, he’s put in big tariffs on vehicles from Mexico and Ontario Canada, as well as on steel and aluminum from Canada, but the US trade deficit with China is his real target.

As I’m sure you heard, the President announced sweeping reciprocal tariffs of different magnitude for each of the US’s trading partners (see a tariff analysis). Yesterday morning, the tariffs were applied which drew a strong response from Beijing. Beijing announced China’s tariffs on the US would rise to 84%.  Then yesterday afternoon, Trump decided to pause the big tariffs on all nations for 3 months with the exception of China, which saw its tariff rate increased to a whopping 125%.

Add on fees charged to ships from China using American ports, and you get a clear picture of Trump’s resoluteness.

Trump and his team stated that this was all part of the negotiation process, but declined to say it was a play to really hit China in particular. Most might see it as a clever setup, to expose China’s attitude and lack of gratitude for decades of trade surpluses. From the US point of view, the China response was deplorable and they deserve to get hit. However, Mark Carney, the acting Canadian Prime minister (Canadian election is soon) imposed a counter tariff rise too, even after Trump warned all countries not to do it. Trump seems to have forgiven Canada for now, however the previous tariff rate on autos, steel and aluminum remains.

Trumps promised reciprocal tariffs on Europe, Canada, Vietnam, UK, and all others will return in July.

China Trembles As Exports Slow to a Trickle

Today, April 10^th, Goldman Sachs published its revised forecast for China’s GDP growth. It forecasts a 4% in 2025 (down from 4.5%) and 3.5% for 2026 (down from 4.0%). GS says the tariffs will have a significant effect on their economy and labor market. Not mentioned is a likely big reduction in foreign direct investment.

Citi too downgraded its China GDP growth forecast from 4.75% to 4.2% for 2025.

As of 2024, China’s GDP is less than the US GDP in nominal terms but larger in purchasing power parity (PPP) terms. Here’s a detailed comparison:

1. Nominal GDP (Market Exchange Rates)

• United States: ~$28.3 trillion (2024, IMF est.)
• China: ~$18.8 trillion (2024, IMF est.)
• Difference: The U.S. economy is still ~50% larger than China’s in nominal terms.

2. GDP (Purchasing Power Parity – PPP)

• China: ~$35.3 trillion (2024, IMF est.)
• United States: ~$28.3 trillion (2024, IMF est.)
• Difference: China’s economy is ~25% larger than the U.S. when adjusted for cost of living differences.

Also not mentioned, is that the US is drawing in trillions of new investment and as US production increases in volume, breadth and quality, Chinese competitiveness will come into question.  Additionally, the rising political, trade and military ambitions of each nation will cause nations to choose between the two. Given the US improvement, it stands to reason they will side with the US.

Stopping the Flood of OverSupply

As China churns out its automated production to flood the market with oversupply, the US and Europe will be on guard for product dumping. It’s becoming a big part of the new conversation.

Domestic consumption is falling, thus it should see massive deflation, higher unemployment, falling government revenues, debt issues, and more.  All told, the picture is one of recession and a country in decline.

The 125% tariffs apply to everything China exports to the US.  The US is being very vigilant about China exports arriving in different forms through other countries including Canada, Mexico, Asia and Europe. This last point is something not reported by the Democrat media.  There are still many hedge funds, corporations, banks and political groups that hope to see a return to their Pro-China economic plan.

Again, it won’t be just the US import tariffs that will hurt China severely.  The US is blocking any country’s exports that contain Chinese parts. Also Europe will have to defend itself against China’s mounting oversupply spilling out to the globe. Europe speaks of trade agreements with China, but it’s likely just posturing, given they can see the glut coming.

It’s a new era of protectionism, nationalism and antipathy toward globabalism.  This won’t be stopped once it gets rolling. For China, it means turning inward to stimulate domestic spending.

The Impact of the US Tariffs on China

1. Reduced Export Growth & Economic Slowdown

China’s economy is heavily reliant on exports, and the U.S. is its largest trading partner. Higher tariffs (some rising to 25–100%) will make Chinese goods less competitive, shrinking export revenues. This could worsen China’s existing economic challenges, including weak domestic demand, a property crisis, and slowing GDP growth.

2. Overcapacity & Industrial Strain

China has invested heavily in advanced manufacturing (EVs, batteries, solar panels), leading to overcapacity. With U.S. and EU tariffs blocking key markets, Chinese firms may struggle to offload excess supply, leading to factory closures, layoffs, and financial stress in key industries.

3. Supply Chain Disruptions & Shifting Trade Patterns

Many global companies are diversifying supply chains away from China (e.g., to Mexico, Vietnam, India) to avoid tariffs. This “de-risking” trend weakens China’s position as the world’s factory and could lead to long-term loss of manufacturing dominance.

4. Retaliatory Risks & Trade War Escalation

China may retaliate with its own tariffs, export controls, or non-tariff barriers (e.g., rare earth minerals, critical materials). A prolonged trade war could hurt global growth, raise inflation, and disrupt tech supply chains.

5. Currency & Financial Market Pressures

If exports decline sharply, China may face weaker demand for the yuan, prompting further monetary easing or capital controls. This could destabilize financial markets and foreign investment flows.

6. Technological Decoupling & Innovation Slowdown

U.S. tariffs, combined with tech restrictions (e.g., semiconductor bans), could limit China’s access to advanced tech, hindering its ambitions in AI, EVs, and green energy. This may force China into costlier domestic R&D or reliance on less efficient suppliers.

 China’s Economic Status

China’s 2024 Economic Statistics help us understand their current situation, although given trade has sunk, their status now in 2025, and going forward looks much worse, and unreported by the CCP.

1. GDP Growth: Slowing, But Still Stable

• 2024 Growth Forecast: ~5% (official target), but many analysts suspect real growth is closer to 4–4.5% due to weak domestic demand.
• Impact of Tariffs:
  • Short-term: Tariffs may shave 0.2–0.5% off GDP due to lower exports (U.S. is ~17% of China’s total exports).
  • Long-term: If trade wars escalate, China may face structural slowdowns as foreign investment and tech access weaken.

2. Trade Balance: Exports Strong, But Vulnerable to Tariffs

• Current Trade (2024):
  • Exports: $3.4 trillion (2023), but growth slowing (~1.5% YoY in early 2024).
  • Imports: $2.6 trillion (weak domestic demand).
  • Trade Surplus: ~$800 billion (a record high, partly due to weak imports).
• Impact of Tariffs:
  • EVs, Batteries, Solar: China dominates these sectors, but U.S. (and EU) tariffs will force it to find new markets (e.g., Southeast Asia, Latin America).
  • Overcapacity Risk: If exports decline, China may dump excess supply elsewhere, sparking more global trade tensions.

3. Housing Market: Still in Crisis

• Current Situation:
  • Property sector (~25% of GDP) remains in a multi-year slump.
  • Defaults: Evergrande, Country Garden, and others have collapsed or restructured.
  • Home Prices: Down ~30–40% in some cities, unsold inventory at record highs.
• Impact of Tariffs:
  • Indirect Hit: If tariffs weaken overall growth, consumer confidence and employment could worsen, further depressing housing demand.
  • Government Response: Beijing may double down on stimulus (e.g., social housing programs) to offset economic drag.

4. Bank Strength: Rising Bad Loans, But State Backing Prevails

• Current Situation:
  • Bad Loans: Officially ~1.6% of total loans, but analysts estimate real NPLs at 5–10% due to property crisis.
  • Local Government Debt: ~$13 trillion (90% of GDP), straining regional banks.
• Impact of Tariffs:
  • Credit Risk: If export-driven firms (e.g., manufacturers) struggle, loan defaults could rise, pressuring banks.
  • Government Lifeline: Beijing will likely bail out key banks, but smaller lenders may face stress.

5. Employment: Youth Unemployment Crisis, Manufacturing Weakness

• Current Situation:
  • Official Unemployment: ~5.2% (underreported, excludes many migrant workers).
  • Youth Unemployment (16–24): ~15% (after Beijing changed calculation methods; was 21%+ in 2023).
  • Manufacturing Job Losses: Factories cutting jobs due to weak global demand.
• Impact of Tariffs:
  • Sectoral Job Losses: EVs, solar, and electronics (key export sectors) could see layoffs if orders drop.
  • Social Stability Risk: Beijing fears unrest if unemployment spikes, may boost public-sector hiring.

There’s a lot of turmoil ahead for the USA, China, Europe, and other trading nations. The Chinese communist leaders appear to be entrenched in their stand against a new global order and the revival of the USA. The correct approach would be to show gratitude in statements and showing how China would work with the world to correct harmful trade imbalances.  Most nations have massive national debts, so the trade deficits cannot continue.

The tariffs against China will continue until Trump has firmly rebuilt America’s industries and reached the level of success he’s expecting. This will take years, and much political turbulence to smooth over.

China’s economic situation is dire and creative solutions will be needed. A redrafting of it industries and large fiscal stimulus will be needed to boost its efficiencies and domestic consumption.  Hopefully, the communist leaders are focusing on this and all will be well.

See more on the latest US stock market predictions and on the effect of the tariffs on the American stock market and effect on the US housing market.