In Depth: How China Can Counter Trump’s Tariffs

The U.S.-China trade conflict, characterized by President Trump's "reciprocal tariffs," poses significant challenges to China's economy, prompting its policymakers to urgently stimulate domestic consumption, improve household income, and enhance public services, according to economists [para. 1]. The escalating trade war has led analysts to predict slower economic growth for China, with export growth potentially decreasing by 5-10 percentage points this year, reducing GDP growth by 0.5 to 2 percentage points [para. 2]. UBS Investment Bank and Goldman Sachs have already downgraded their forecasts for China’s 2025 GDP growth to 3.4% and 4%, respectively, citing the economic effects of tariffs [para. 3].

China's government has made boosting consumption a top priority, unveiling a 30-point action plan to raise incomes, support consumer credit, and develop the services sector. However, the speed and scale of tariff increases have made faster intervention essential [para. 4][para. 5]. With tariffs on some Chinese imports reaching up to 245%, China's government may need to further increase its fiscal deficit to address the fallout [para. 6]. Policy proposals suggest expanding unemployment benefits, food vouchers, and living allowances through special treasury bonds, which could significantly increase consumer spending and thus stimulate GDP growth [para. 8][para. 9][para. 11].

China's export sector faces mounting challenges. Export orders are expected to decline from Q2, impacting profitability and employment. Analysts emphasize the necessity of supporting affected industries and workers to stabilize the economy [para. 12][para. 13]. Rural and low-income urban populations are identified as critical markets for consumption growth, with their high propensity to spend creating a multiplier effect. Policymakers are encouraged to integrate rural migrant workers into urban areas and enhance their access to public services [para. 14][para. 16][para. 17]. For instance, targeted social safety nets such as increasing rural pensions could unlock an additional 1 trillion yuan in consumption, further stabilizing the domestic economy [para. 18].

Investment in public infrastructure also remains critical. Though traditional infrastructure projects may be saturated, significant gaps exist in sectors like healthcare, urban road networks, and housing renovation. These areas could attract approximately 31 trillion yuan in incremental public investment over the next five years, addressing both immediate economic demands and long-term urbanization needs [para. 23].

Internationally, China seeks to counter U.S.-imposed tariffs by strengthening ties with global trade partners like the EU, ASEAN, and other countries. Enhanced cooperation through trade pacts like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and Regional Comprehensive Economic Partnership (RCEP) could buffer China against U.S. protectionism. Analysts argue that fostering inclusive trade agreements and creating security buffers could stabilize global economic dynamics while lessening U.S.-China tensions [para. 27][para. 29].

The volatile U.S. foreign policy under Trump presents China with an unprecedented opportunity to lead economic globalization initiatives. By filling the void left by U.S. retreat from global trade, China aims to reshape international economic systems, collaborating with Eurasian and Asian nations to reinforce multilateralism and counterbalance U.S. isolationism [para. 30]. This strategic focus on expanding partnerships and advancing internal reforms reflects confidence in China’s ability to sustain long-term stability amidst global and domestic pressures [para. 31].