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China’s economy beats forecasts but faces looming tariff shock under Trump

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April 16, 2025
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China’s economy beats forecasts but faces looming tariff shock under Trump

China’s economy grew faster than expected in the first quarter of the year, with a 5.4 per cent expansion driven by robust industrial output and domestic consumption — a performance that economists warn may prove short-lived as US tariffs begin to bite.

The stronger-than-forecast GDP figures, released by Beijing on Tuesday, showed that the world’s second-largest economy continued to defy global headwinds in the January-March period. Analysts had expected 5.1 per cent growth, making the actual outturn a welcome surprise. However, it came just weeks before a 145 per cent US tariff on Chinese goods took effect, as President Donald Trump intensifies a trade war that many fear could trigger a wider global slowdown.

The quarterly growth figure matched that of the final quarter of 2024, suggesting China had maintained economic momentum despite persistent deflationary pressures and concerns over unemployment. A rush of exports ahead of tariff deadlines contributed to the resilience, as manufacturers expedited shipments to beat the US levies.

Retail sales — a key barometer of domestic consumption — rose 5.9 per cent year-on-year in March, accelerating from 4.8 per cent across January and February. Meanwhile, industrial output surged 7.7 per cent in March, up from 5.9 per cent in the first two months, as production ramped up in anticipation of new trade barriers.

“Before the tariff storms hit, China’s GDP growth likely eased but remained solid, thanks to the recovery in domestic demand,” said analysts at Societe Generale. “Overall, the GDP report should show that stimulus is working, but the support will not stop here with bigger tariff challenges ahead. The policy put is on.”

Still, there is growing concern that the pace of growth will slow through the remainder of 2025. UBS has downgraded its full-year GDP forecast for China to 3.4 per cent, down from 4 per cent, citing the impact of sustained US trade tariffs and the likelihood of further internal economic adjustments.

“We think the tariff shock poses unprecedented challenges to China’s exports and will set forth major adjustment in the domestic economy as well,” UBS economists said in a note to clients.

Beijing has already announced retaliatory measures on US imports, fuelling fears of a prolonged and destabilising tit-for-tat dispute between the world’s two largest economies. Economists warn that while short-term stimulus is cushioning the blow, sustained trade tension could stall China’s recovery and lead to a more subdued investment environment.

The Chinese government has set a GDP growth target of around 5 per cent for 2025, which now looks increasingly ambitious. Despite ongoing state support and efforts to bolster infrastructure and manufacturing, external pressures are mounting.

Persistent deflation has also become a concern, with falling producer prices suggesting weakening demand across key sectors. At the same time, youth unemployment remains elevated, further dampening consumer confidence and threatening broader economic stability.

“China has the policy tools to respond to shocks,” said one senior economist in Shanghai, “but the combination of global trade volatility, domestic demand fragility, and deflation means there’s no room for complacency.”

As the US election cycle heats up, with President Trump reaffirming his protectionist stance, few expect an immediate easing in tensions. For China, the road ahead is likely to require careful balancing of short-term stimulus with long-term structural reform — while bracing for whatever trade salvos Washington fires next.

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