(Bloomberg) — Higher US tariffs on Chinese goods could dent growth but also force a long-awaited shift to the consumer in the world’s second-largest economy, according to economists at Goldman Sachs Group Inc.
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In the event of higher levies, Beijing would be forced to step up fiscal support to further bolster domestic demand, analysts led by Xinquan Chen said in a research note Friday. They said that the wave of government stimulus this year — which includes a household appliances trade-in program and real estate support — is already set to shift growth next year inward.
“If Chinese goods face higher US tariffs next year, this would accentuate the shift towards domestic demand,” the researchers wrote.
Analysts and investors increasingly see Chinese officials pivoting more to consumption only if the trade picture weakens further. Veteran Asia investor Weijian Shan, executive chairman of PAG, also said a tough external environment would spur officials to prioritize greater consumption to drive economic growth.
China has identified shrinking demand as a key challenge since 2021 and repeatedly vowed to promote consumption at gatherings of the Politburo, a body comprising China’s top officials. Many economists — including policy advisers and those working at private institutions — have proposed cash handouts for families to boost spending over the past few years but so far Beijing shows no sign of taking that advice.
Organizations including the International Monetary Fund have also called for economic rebalancing in China away from such a heavy reliance on investment and trade. The US has joined the chorus, criticizing oversupply in the Chinese economy. For Beijing, rising hostility from the US and measures to limit China in key technologies have only bolstered President Xi Jinping’s determination to prioritize tech self-reliance and the manufacturing sector.
US voters head to the polls Tuesday in what’s shaping up to be a tossup between Donald Trump and Kamala Harris. The former president said he might impose a tariff on Chinese goods of more than 60% if elected.
The Goldman analysts assume a 20% tariff on Chinese goods if Trump wins the presidency, shrinking the Asian nation’s gross domestic product by 0.7 percentage points and hitting capital formation and exports. In that case, they also expect China to tolerate a weaker yuan to mitigate the hit, expand the household goods and equipment replacement programs, and provide targeted cash handouts to some households.