China's Challenge To The World Economy

2025-04-14 15:45:00 ET

Summary

• Even before President Trump’s escalation of the trade war, China’s economy was in trouble. The last thing that the country needed was a negative external shock in the form of punitive import tariffs on its exports to the US, which constitute close to three percent of its GDP.
• China has responded to the US tariff increases with a 125 percent tariff on US imports of its own, the banning of rare earth metal exports to the United States, and increased restrictions on US companies operating in China.
• Before turning the screws further on the Chinese economy, the Trump administration might want to think through the implications of a Chinese supply chain disruption for US manufacturers, the effects of high tariffs on domestic inflation, and the spillover effects from China to the rest of the world economy.

Even before President Trump’s escalation of the trade war, China’s economy was in trouble. The bursting of its epic housing and credit market bubble had led to a wave of property developer defaults, falling home prices, and serious strains on local government finances. In turn, that led to a marked slowing in the Chinese economy to among the lowest growth rate in decades. It also resulted in a troublingly high youth unemployment rate and clear signs that the country was on the cusp of price deflation....

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