How can tariffs impact economic growth?published at 03:13 British Summer Time
Annabelle Liang
Business reporter, Singapore
Tariffs are levies that make it more costly to export goods to markets like the US.
For businesses in China, that tax on sending many products to America stands at 145%.
Firms have to make difficult choices of whether to raise their prices to customers, absorb the cost of the tariffs, or a bit of both.
All three options can result in lower profits, affecting the contributions of businesses to the Chinese economy. This could impact growth, because of how much the country relies on exports.
Tariffs can also affect investor confidence. In recent weeks, tariff announcements have rocked financial markets around the world as well as China.
But the full effects is not reflected in today’s GDP release, covering the first three months of the year, analysts say.
Louise Loo from the Oxford Economics consultancy expects the “dent to growth to only come in the May or June numbers”.
“That is when shipments in transit start getting the full treatment of tariffs, translating to a pullback in business investments and production,” she adds.
Stephen Innes from the SPI Asset Management firm says that with tariffs, China’s growth “trajectory from here is unmistakably ugly”.
“With forecasts dropping below 4% for the next few quarters, that’s a
steep cliff from Beijing’s official 5% growth target,” he adds.
