The good news is that President Trump did not announce tariffs on China on his first day back in the White House.

Initial comments have not given much indication of his intentions, potentially reflecting a higher priority being given to border security and also disagreement among his economic team. 

Tariffs and other trade measures can still be expected, but we may have to wait until trade reviews are delivered in early April.

China’s economy seems to have found some momentum at the end of 2024, posting a strong Q4 GDP growth print. 

Unfortunately, one key driver of recent economic strength has been broad export growth married to subdued import demand. This will likely compound the tensions around China’s trade imbalances going into any trade negotiations with the Trump administration. 

More positively, given lags between loosening financial conditions and their impact on the economy, Q4’s additional momentum is unlikely to capture the recent policy easing. The 1.5 standard deviation loosening in abrdn’s China Financial Conditions Index should therefore signal that policy loosening will support 2025 growth. 

Ultimately, more support will be needed to mitigate the impact of trade war disruptions, and our best guess is that around 1% is knocked off the level of Chinese GDP, which will limit 2025 growth to 4.6% and potentially push 2026 GDP growth down to 4.1%.

Inflation is likely to remain subdued (0.6%), even if the authorities condone a sizeable FX depreciation. 

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