The news: China vowed to “fight to the end” against President Donald Trump’s tariffs, its most forceful response yet in the rapidly escalating trade war, which could drive up the cost of goods while weighing heavily on economic growth.

The Ministry of Commerce made the comment in response to Trump’s threat to impose an additional 50% tariff on China imports, which followed the country’s 34% retaliatory tariff on US goods.

A severe blow: The Trump administration is operating under the assumption that a trade war would be hugely damaging to China’s economy—a not unreasonable view, given the country’s struggle to recover from a yearslong property crisis that has dented consumer confidence and forced companies into profit-eroding price wars.

• China’s GDP could take a hit. Additional US tariffs on Chinese goods could cut GDP growth by 2.4 percentage points this year, Citi analysts said, although this doesn’t account for any mitigating measures from Beijing (like fiscal or monetary stimulus) as well as the latest 50% increase in the tariff rate.
• It wouldn’t be immune to a slowdown in global trade. The economic impact of the tariffs and any retaliatory policies could limit demand for Chinese products in markets beyond the US.
• And China’s efforts to look for US alternatives could trigger protectionist responses. The country has already been the subject of numerous anti-dumping investigations, while even close allies like Russia are looking to limit imports of China-made cars and other goods. Those concerns could coalesce into more tariffs on Chinese goods—a scenario that economist Richard Baldwin told Bloomberg is “pretty certain.”

China sees opportunity: Beijing’s defiance is a matter of political necessity at this point—capitulating to Trump now would be an untenable loss of face for both President Xi Jinping and the country writ large. But the tariffs are galvanizing the government to take serious steps to boost the economy in the hopes that increased domestic consumption will offset slowing global demand.

• More stimulus on the way. Government officials are discussing whether to move up planned stimulus measures, which are aimed at increasing consumption as a share of GDP and restoring consumer confidence. At the same time, Beijing is allowing local governments to borrow more money to ease their cash crunch and direct more funds toward consumers.
• Boosting local industry. Beijing is mending fences with the tech industry, a move set to encourage private investment and drive growth while turning Chinese companies like DeepSeek and Alibaba into more powerful players on the global scene. The government is also exerting significant pressure to keep companies like Shein from shifting production abroad, aiming to shore up local manufacturers.
• Charm offensive. The upheaval caused by Trump’s tariffs have created an opening for China to position itself as a more stable and predictable trading partner.

Our take: As with the rest of Trump’s tariff plans, there is too much uncertainty to know whether the latest round of duties will cripple China’s already-vulnerable economy, or enhance its influence as the US retreats into protectionism.

What is certain is that Beijing will need to spend trillions of yuan on stimulus measures to blunt the impact of tariffs—and even that may not be enough to escape unscathed as the US ratchets up duties to 104%.

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