China's economy expanded by 5.4% in the first quarter of 2025, exceeding market expectations of 5.1% and maintaining the same pace as the previous quarter, but analysts warn this growth may not be sustainable as the full impact of President Trump's escalating tariffs, which have now reached 145% on Chinese exports, has yet to be reflected in economic data.
Chinese exports surged by 12.4% year-on-year in March 2025, a five-month high that significantly exceeded economists' expectations of 4.4% growth.12 This dramatic increase represents what analysts are calling a "final hurrah" as Chinese manufacturers rushed to ship goods before Trump's steep tariff increases took effect.2 Exports to the United States specifically jumped by 9.09% compared to the previous year's 2.3% growth.2
The pre-tariff rush highlights the immediate impact of trade tensions, as factories accelerated shipments ahead of what Julian Evans-Pritchard of Capital Economics called "Liberation Day."1 However, this export momentum is unlikely to last, with economists warning that "shipments are set to drop back over the coming months" as the full weight of the 145% tariffs—up from previous levels of 20.8% when Trump's second term began—reshapes global trade flows.23 The current tariffs represent a staggering 40-fold increase from pre-trade war levels, creating unprecedented pressure on China's export machine that has maintained a trade surplus for 30 years.43
The escalation to 145% tariffs on Chinese imports represents one of the most dramatic trade policy shifts in recent history. This rate combines a 125% reciprocal tariff on top of the existing 20% tariffs implemented earlier in 20251. While certain products are exempt, including personal transfers without value, steel and aluminum already subject to Section 232 tariffs, pharmaceuticals, and energy products1, the impact is expected to be severe and far-reaching.
Economic projections paint a concerning picture: the tariffs could reduce US GDP by 0.8% before foreign retaliation and 1.0% after accounting for China's countermeasures2. American households face an average tax increase of nearly $1,300 in 2025, with after-tax income expected to drop by 1.3%2. Businesses are already feeling the uncertainty, leading to reduced investment and hiring plans3. Retailers will bear the heaviest burden from Chinese tariffs, while American farmers will suffer most from China's retaliatory 125% duties3. The World Trade Organization has warned that these escalating tariffs could reduce global trade by up to 1.5%4, potentially triggering a worldwide economic slowdown.
China has unveiled an unprecedented fiscal stimulus package for 2025, raising its fiscal deficit to a record 4% of GDP with plans to add 11.86 trillion yuan (~$1.64 trillion) in debt1. This ambitious economic intervention aims to counteract the impact of Trump's tariffs through multiple channels:
Boosting domestic consumption has become Beijing's top priority for the first time, with 300 billion yuan allocated to consumer goods trade-in programs (double last year's amount)2
Expanding public expenditure to 30% of GDP, an increase of 1.4 percentage points2
Allowing local governments to use bond proceeds to purchase idle land and vacant housing units2
Implementing monetary easing through official rate cuts to combat persistent deflationary pressure23
Investing in infrastructure, manufacturing, and recapitalizing banks1
Despite these measures, many economists remain skeptical about China achieving its "around 5%" GDP target for 2025. Fitch Ratings predicts actual growth of just 4.3% due to "headwinds from subdued domestic demand, lingering property-sector stress and rising external challenges"2, while UBS maintains a baseline forecast of around 4%4. JPMorgan estimates that increasing tariffs will drag 2025 GDP by 1.2 percentage points, with policy actions offsetting only about 0.8 percentage points of this impact5.