Economic Impact of a 60% Tariff on Chinese Goods

Analysts at Citi Research predict that a 60% universal tariff on Chinese goods entering the U.S. would have severe economic consequences for China, potentially reducing GDP growth by 2.4 percentage points.

Tariff Increase

This proposed tariff is significantly higher than previous tariffs, which were approximately half as stringent.

Economic Implications

A tariff of this magnitude could effectively exclude Chinese products from the U.S. market, as seen during the 2018-2020 trade tensions.

Key Impacts:

1. Reduced Exports: Chinese exports to the U.S. contribute nearly 2.8% to China's GDP. This tariff could severely reduce these exports.
2. Higher Prices: Assuming that costs pass through to U.S. importers, the tariff would likely raise prices, diminishing U.S. demand for Chinese products.
3. Import Reduction: Each percentage increase in tariff could lead to over a 4% decline in U.S. imports from China.

Overall Economic Contraction

According to Citi’s model, a 60% tariff could result in a contraction equivalent to 2.4% of China's GDP, showcasing the significant challenges this would create for the Chinese economy.

Response from China

Chinese policymakers would likely react robustly to mitigate the economic fallout. The People’s Bank of China may prioritize stabilizing the yuan and consider controlled depreciation, with an anticipated exchange rate between 7.7 and 8.0 per dollar if tensions persist.

Moreover, analysts believe China would enhance domestic stimulus measures, focusing on policies to boost demand and continue investment in technology to counteract the impending economic slowdown.