China’s economy performed better than anticipated in the first quarter of the year. However, this growth took place before the onset of the intense trade war with the United States and before the decoupling of the world’s two largest economies.
Economists had predicted a 5.1% growth in January-March compared to the previous year. Ultimately, the economy grew by 5.4%.
Despite these encouraging figures, the Chinese economy is facing significant challenges due to Trump’s trade war. These issues are unlikely to be sustained throughout the year.
Importantly, the most severe of Trump’s tariffs were implemented in April, which means they were not factored into these figures.
In Q1, China initially faced a 10% tariff on all exports to the US, which was later increased to 20% starting from March 10.
However, China had prepared for taxes at that level, resulting in a rather minimal impact.
Growth was also driven by exporters’ efforts to fulfill orders in bulk before the tariffs came into effect.
Indeed, exports experienced an impressive surge of 12% in March compared to the previous year. However, this rate cannot be sustained.
Currently, tariffs on goods exported from China to the US stand at 145%. Trade under such conditions is virtually impossible.
Considering that exports contribute to one-fifth of China’s economy and domestic consumer confidence remains sluggish, there will inevitably be a significant impact.
Experts widely agree that China is likely to miss its annual growth target of 5%. The question is to what extent.