ABN Amro: China Faces a Bigger Tariff Shock, but Seems Better Prepared This Time

Foreks - Arjen van Dijkhuizen from ABN Amro emphasized that a potential increase in tariffs by the Trump administration in the US may exert more pressure on GDP during a period when the Chinese economy is showing signs of recovery. The senior economist stated, "We assume a larger tariff shock compared to 2018-19," and noted that the US is likely to implement tariffs in the second quarter, reaching an average rate of 45%. "This is almost four times the rate at the end of the first trade war." He assessed that tighter export and investment restrictions are likely, but added that China appears to be more prepared this time, indicating that it has developed countermeasures such as reducing dependencies on the US and restricting access to rare earth elements.

Arjen van Dijkhuizen mentioned that China may not respond proportionally to the US's new tariffs but has developed a playbook to react. For example, he pointed out that Beijing could target the "Trump base" in rural areas by raising tariffs on agricultural products. Other potential moves could include blacklisting US firms, restricting access to critical inputs like rare earths, and a decline in currency value.

Recalling that during the first trade war between the two economies, the yuan lost 15% against the dollar from March 2018 to September 2019, Arjen van Dijkhuizen stated, "We expect the PBoC to tolerate a further weakening of the CNY to balance the new tariffs," though intervention might likely occur if the depreciation becomes erratic. He added that a significant weakening of the CNY is not likely to fully offset the tariff impact, but it would benefit China's external competitiveness.

ABN Amro noted that, in response to these tariffs, China might also increase fiscal support for its economy, forecasting growth of 4.9% in 2024, 4.3% in 2025, and 4.2% in 2026.