Goldman Sachs chief economist Jan Hatzius said last Thursday, January 9, during a speech at the Atlantic Council in Washington, that despite the election promise of Donald Trump, who will return to the White House this month, to impose 60% tariffs on absolutely all goods imported from China, in reality, the US president-elect is likely to seek an average of 20% tariffs on most products shipped from an Asian country.
At the same time, Mr. Hatzius noted that levies in some cases may reach the so-called pre-election mark of 60%. According to the chief economist of one of the largest financial institutions in the United States, the corresponding probability is relevant for a limited list of key capital goods, including steel, aluminum, and solar panels.
Jan Hatzius also suggests that Beijing may impose a variety of retaliatory measures in response to Washington’s tariff increase. The corresponding scenario will become a fact of reality if the world’s two largest economies escalate their trade war during the second administration of Donald Trump.
Mr. Trump, who will take office on January 20, has also threatened to impose 100-200% tariffs on electric vehicles from Chinese manufacturers. He considers the relevant potential measures as an opportunity to return jobs and production sites back to the United States.
According to Jan Hatzius, a moderately favorable scenario provides that Washington will increase tariffs on goods imported from China by about 20% on average, and in some sectors, the corresponding figure will reach 60%. He doubts that the 60% figure will be relevant for all import routes from the Asian country, noting that this would be a very inflationary result.
Consumer products such as smartphones and other electronics are likely to be hit with lower tariffs. At the same time, the 60% figure may affect capital and intermediate goods covered in Sections 201 and 232, tariff lists Donald Trump used in his first term. In this case, among other things, steel, aluminum, and solar panels are meant.
During his first term as president, Donald Trump imposed tariffs on over $300 billion worth of Chinese products. The current US President Joe Biden imposed tariffs on $18 billion worth of imports. The relevant decision applies, among other things, to electric vehicles. It is worth noting that the US 100% tariff is already in effect for products of the corresponding category. As for the solar panels shipped from China, in this case, the corresponding figure is 50%. A 25% tariff is relevant for steel and aluminum products.
Jan Hatzius claims that Beijing is currently ready to resume the trade war with Washington. Also, according to him, the Chinese authorities have many tools to participate in the relevant process. The expert suggests that Beijing’s most likely response to the increase in tariffs by Washington will be measures such as export controls, an increase in the bond portfolio, and a complication of the conditions for US companies doing business in China.
It is worth noting that the United States and China have already imposed trade restrictions on each other. The US has restricted the export of advanced chips and equipment for the production of microcircuits of the appropriate category to an Asian country. Beijing has banned shipments of several minerals that are critically needed for semiconductor manufacturing to the United States. The relevant decision affected, among other things, the export of germanium, antimony, and gallium. It is worth noting that Beijing in this case acted within the framework of the concept of retaliatory measures.
Currently, the prevailing opinion among experts is that Donald Trump will continue to expand the practice of trade restrictions against China. His repeatedly stated intentions to increase tariffs on imported goods hint at corresponding plans to a certain extent.
It is worth noting that China is the second largest holder of US bonds after Japan. Beijing is steadily selling off some of its assets worth $760 billion. China’s corresponding actions are aimed at reducing the level of dependence on the official currency of the United States.
In the past, Goldman Sachs has published a forecast for the economic growth of the Asian country. Experts of the financial institution expect that China’s gross domestic product (GDP) will increase by 4.5% in 2025. They also predict that this indicator will grow by 4.9% in 2024.
Jan Hatzius said that Washington’s increase in tariffs on goods imported from China would reduce the Asian country’s GDP by about 70 basis points, or 0.7%.
In a New Year address, the head of the People’s Republic of China, Xi Jinping, said that this year, the country is expected to achieve the target economic growth of 5%.
It is worth noting that Beijing has recently been facing a slowdown in the upward dynamics of GDP. The corresponding situation is the result of the combined impact of factors such as sluggish domestic consumer demand and the downturn in the housing market, which turned out to be a prolonged crisis. Also, in this case, the long-term structural problems associated with the aging of the Chinese population are a negative impact factor. In the second half of last year, the Chinese authorities announced a program of measures to stimulate the revival of the economic system. This program is the largest since the coronavirus pandemic, which has come as a shock to the global economy in general and the Chinese economy in particular.
It is also worth noting that the factor of pressure on the GDP of an Asian country is what can be called an external situation. In this case, it implies the currently observed geopolitical tension, which so far has not shown any signs or even hints of an improvement in the state of affairs.
