US-China Trade: Stepping back from the brink – Standard Chartered

The worst of the US-China trade war is likely behind us, although we see twists and turns ahead. With a substantial reduction in tariffs, we now estimate a GDP impact of 0.6-1.0ppt from US tariffs. China may withhold additional fiscal stimulus unless bilateral trade tensions re-escalate, Standard Chartered's economists note.

A contingency plan is meant for contingencies

"The US and China have agreed on tariff reductions to de-escalate trade tensions. The US will lower its levies from 145% to 30% and China will reduce its duties from 125% to 10%, effective from 14 May. Both sides will suspend the 24% additional tariffs for 90 days. In addition, mechanisms will be set up for further negotiations. The outcome of the initial trade talks is better than market expectations, although if the trade war under Trump’s first term offers any guidance, we see this agreement as the beginning of a potentially lengthy and bumpy journey."

"The 30% tariff would trim China’s GDP growth by c.0.6ppt in the next 12 months, according to our estimate. If the 24% tariff is added back after the 90-day pause, the GDP impact would rise to c.1.0ppt. We estimate that full implementation of the fiscal package approved in March would mostly offset the tariff impact. If bilateral negotiations take a turn for the worse, we expect the government to roll out additional fiscal stimulus, as guided by the Politburo meeting in April. We therefore maintain our 2025 GDP growth forecast at 4.8%, and see moderate downside risks."

"Following the PBoC’s recent easing measures, which were broadly in line with our expectations, we maintain our forecast of another 10bps policy rate cut in Q4. We expect no RRR cuts for the rest of the year unless additional fiscal stimulus is introduced. We lower our 2025 CPI inflation forecast to -0.1% from 0.7% to reflect the deflationary impact of the global tariff war on China and economies other than the US."