Trade tariffs under a potential Trump 2.0 pose a risk to exports, a crucial driver of growth. However, trade diversion through countries like Vietnam and Mexico could help offset the impact of these tariffs over time. Despite this, domestic demand remains weak, leading to a revision of our 2024 growth forecast to 4.9% from 5.1%, according to ABN AMRO Senior Economist Arjen van Dijkhuizen.
Beijing’s Emphasis on Supply Over Demand
“In Q2-24, quarterly GDP growth slowed to 0.7% from an above-trend pace of 1.5% qoq s.a. in Q1. Annual growth also decreased more than expected to 4.7% yoy (Q1: 5.3%). While we anticipate some recovery in Q3, we have adjusted our 2024 annual growth forecast to 4.9%,” van Dijkhuizen explains.
“Currently, exports play a critical role in driving growth, despite a slowdown in export growth in July. China’s supply-oriented approach has led to an escalation of trade disputes, particularly with the US and EU, who are safeguarding strategic sectors against Chinese oversupply. This risk could heighten under a potential ‘Trump 2.0′, with threats of universal tariffs of 10% and broader China-specific tariffs compared to the previous tariff war from 2018-2020.
“Despite policy easing efforts, Beijing’s focus remains on the supply side rather than boosting demand. While policy rates were marginally cut in July and kept steady in August, the impact has been limited due to weak loan demand and slowing lending growth. The CCP’s Third Plenum in July highlighted Xi’s emphasis on high-tech development and self-reliance.”