Trump Effect: S&P Global Cuts China Growth Projections On Looming Tariffs Threat

S&P Global Ratings, one of the top credit rating agencies, has cut the forecast for China's GDP for the next two years, saying that US President-elect Donald Trump's threats to impose high tariffs on Chinese exports could hit the world's second-largest economy.

S&P Global Ratings on Sunday said that it expected China’s gross domestic product to expand by 4.1% in 2025 and 3.8% in 2026, down by 0.2 and 0.7 percentage points, respectively, from its September projections.

"We expect China's economy to be hit by the US tariff increases on its exports. Exports will obviously grow much less, and investment too," said economists at S&P in their first-quarter 2025 Asia-Pacific outlook.

"The impact on investment will in part kick in even before US tariff implementation, because of the increased uncertainty,” the Hong Kong-based South China Morning Post reported, quoting a report co-authored by S&P’s chief economist for Asia-Pacific Louis Kuijs and senior economist Vishrut Rana.

The report lowered the inflation forecast for the coming years and projected a weaker yuan, citing expected US tariffs and their associated downward pressure on prices.

Tariff increases’ spillover effects on employment, income and confidence will also weigh on consumption, it added.

Early this month, Investment bank UBS cut its forecast for China’s economic growth for 2025 due to the threat of steep US tariffs on Chinese goods under Trump’s 2.0.

UBS said it expected China’s gross domestic product to expand by “around 4%” next year, down from an estimate of 4.5% it made in October.

The growth for the world’s second-largest economy is forecast to be “considerably lower” in 2026, UBS added.

British multinational bank Barclays said on Friday it would maintain its four per cent GDP growth forecast for China in 2025, citing “persistent structural headwinds”, “likely US tariff hikes on Chinese goods” and Beijing’s “moderate and reactive fiscal package'.

If only half of Trump’s proposed 60% tariff increase on Chinese goods took effect, the bank estimated, this would be enough to shave 0.8 to 1 percentage point off China’s GDP growth.

China this year fixed the official GDP target at around five per cent and announced several stimulus measures, including a $839 billion plan this month, to help local governments refinance their mountains of debt stated to be about $2 trillion, according to official estimates.

The government has established a 300-billion-yuan (about $42.25 billion) re-lending facility to buy back unsold homes and repurchase idle lands to resurrect its bankrupt real estate sector, which constituted the mainstay of China’s economic growth.

China is gearing up for Trump’s second term, beginning January 20 next year, to deal with his threat to impose a 60% increase of tariffs on its over $427 billion annual exports to the US.

Trump, who acted tough on China during his previous term, was expected to reinforce measures against Beijing.

To counter tough tariff increases by the incoming Trump administration in the US, China announced new policy measures last week to back its export sector against “unreasonable foreign trade restrictions” and to create a “good environment” for its exports.