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American Focus > Blog > Economy > Wall Street starts to cut China GDP forecasts on U.S. trade tensions
Economy

Wall Street starts to cut China GDP forecasts on U.S. trade tensions

Last updated: April 9, 2025 6:25 pm
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Wall Street starts to cut China GDP forecasts on U.S. trade tensions
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Citi recently made headlines by becoming one of the first investment firms to lower its growth forecast for China due to the escalating trade tensions with the U.S. In less than a week, U.S. tariffs on Chinese goods have more than doubled, prompting Beijing to retaliate with additional duties and restrictions on U.S. businesses.

Analysts at Citi revised their forecast for China’s gross domestic product (GDP) to 4.2% for this year, down by 0.5 percentage points. They cited the lack of potential for a resolution between the U.S. and China following the recent escalations. Natixis also followed suit, cutting its China GDP forecast to 4.2% from 4.7% previously. On the other hand, Morgan Stanley and Goldman Sachs have not adjusted their forecasts yet, but they did caution about increasing downside risks to their current predictions of 4.5% growth.

China had set an official growth target of “around 5%” for 2025 in March, but acknowledged the challenges in achieving this goal.

“The main issue is that uncertainty for the economy is rising,” said Hao Zhou, chief economist at Guotai Junan International. He emphasized the diminishing visibility on future growth prospects, especially with the possibility of further U.S. tariff hikes.

President Donald Trump announced a 50% increase in tariffs on Chinese imports entering the U.S., which will come into effect soon after Beijing imposed a 34% duty on all U.S. products. With multiple rounds of tariff increases earlier this year, the total new tariffs on Chinese products in 2025 have now reached 104%.

Goldman Sachs analysts pointed out that while the initial 50% tariff hike could reduce Chinese GDP by 1.5 percentage points, a subsequent 50% increase would have a smaller impact of 0.9 percentage points. They also highlighted that Chinese exports to the U.S. contribute about 3 percentage points to China’s total GDP.

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As China braces for the release of March trade data and first-quarter GDP figures, Nomura expects a 2% drop in exports this year, worse than their previous forecast of no change. However, they maintained their GDP forecast at 4.5%, taking into consideration the fluid nature of the ongoing trade war.

In response to the economic challenges, China has hinted at the possibility of implementing interest rate cuts or increasing fiscal spending to stimulate growth in the near future. The diminishing impact of tariffs could lead Beijing to believe that U.S. leverage is reaching its limits. Yue Su, principal economist for China at the Economist Intelligence Unit, noted that Beijing may see more strategic advantages in retaliating strongly against the U.S. despite the economic costs.

As the trade tensions continue to unfold, it remains to be seen how China will navigate through the challenges and strive to meet its growth targets amidst the uncertainties in the global economic landscape.

TAGGED:ChinacutforecastsGDPStartsStreetTensionsTradeU.SWall
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