China’s economy surges, but tariffs effect is yet to be seen

China’s economy actually performed better than expected in the first quarter of the year, but it reflects a moment in time before the explosive trade war with America and before the world’s two biggest economies effectively decoupled.

Economists had predicted it would grow around 5.1% in January-March compared to a year earlier. In the end, it grew 5.4%.

But these impressive figures obscure the very serious challenges China’s economy is facing in the wake of Trump’s trade war, and they will almost certainly not be sustained as the year goes on.

Crucially, the worst of Trump’s tariffs came into force in April and so were not reflected in these figures.

In Q1 China faced an initial 10% tariff on all its exports to America which was then raised to 20% from 10 March.

But China had planned and prepared for taxes at that level, and thus the impact was pretty minimal.

Growth was also propelled by the fact that exporters rushed to deliver orders in bulk before the tariffs came into force.

In fact, exports surged a remarkable 12% in March compared to a year earlier, a rate that will not be sustained.

Indeed, current tariffs on goods sold from China to America stand at 145%. Trade at that price is all but impossible.

Given exports account for a fifth of China’s economy and given the fact that consumer confidence domestically is still sluggish, there will be a significant hit to come.

Experts agree China will most likely miss its annual growth target of 5% – the question is by how much.