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Republican presidential nominee Donald Trump has said he could impose a 60% tariff on Chinese imports<\/a> if he returns to the White House, and a new analysis predicted it would drastically slow the world\u2019s second largest economy and send it to the brink of deflation.<\/p>\n Taking into account the effects of Trump\u2019s 2018 China tariffs, economists from UBS offered a simplified model of what a new round would do, assuming that China doesn\u2019t retaliate, other countries don\u2019t match U.S. duties, and some trade is diverted elsewhere. <\/p>\n They estimated that a 60% tariff would slow China\u2019s GDP growth by 2.5 percentage points over the subsequent 12 months. About half of that drag would come from lower exports, with the rest from indirect impacts on consumption and investment.<\/p>\n Stimulus policies from Beijing to mitigate the impact of the tariffs would ease the economic drag to 1.5 percentage points, leading UBS to estimate that GDP growth in 2025 and 2026 may fall to around 3% if the hike is implemented mid-2025. That\u2019s down from the bank\u2019s baseline forecasts of 4.6% and 4.2%, respectively.<\/p>\n \u201cOver time, potentially more exports through and production in other economies can help reduce the impact of higher US tariffs, but there is also a risk of other countries raising tariffs on imports from China as well,\u201d the UBS economists wrote in a note published on Monday. \u201cMoreover, the lingering impact of weaker employment and capex will also weigh on the domestic economy.\u201d<\/p>\n If China retaliates in kind, the economic impact would be harsher, while less severe tariffs would have a smaller effect, the note added.<\/p>\n But just the mere threat of such a tariff hike could still hurt China\u2019s economy. Even if the tariff hike is reduced or avoided, \u201csome damage to the economy would be inevitable as producers and US importers move away from China to avoid the risk and uncertainty,\u201d UBS warned.<\/p>\n China\u2019s economy is already slowing amid an ongoing property crash, weak domestic demand, massive local-government debts, and the Biden administration\u2019s expansion of trade restrictions.<\/p>\n In the second quarter, GDP grew by 4.7%<\/a>, down sharply from the prior quarter\u2019s 5.3% pace and below the government\u2019s 5% target. And a recent meeting of top policymakers<\/a> produced few signs that Beijing is about to take aggressive steps to stimulate the economy.<\/p>\n Meanwhile, demand in China has been so anemic that consumer inflation hit an annual rate of just 0.2% in June. At the same time, producer prices are already falling.<\/p>\n The UBS note said 60% tariffs would add further deflationary pressure by weakening demand and intensifying price competition. The result would be domestic producer prices staying in contraction in 2025 and core consumer inflation hovering around 0%. <\/p>\n That means overall consumer inflation could be stuck around 0.5% for the next couple of years\u2014as much as 1 percentage point lower than the bank\u2019s current baseline forecast.\u00a0<\/p>\n Even before Trump\u2019s improving election odds raised the prospect of new tariffs, views on China\u2019s economy had already been turning dim<\/a>.<\/p>\n \u201cYears of erratic and irresponsible policies, excessive Communist Party control and undelivered promises of reform have created a dead-end Chinese economy of weak domestic consumer demand and slowing growth,\u201d\u00a0Anne Stevenson-Yang, cofounder of J Capital Research and the author of\u00a0Wild Ride: A Short History of the Opening and Closing of the Chinese Economy<\/em>, wrote in a New York Times<\/em> op-ed<\/a> in May.\u00a0<\/p>\n<\/div>\n\n