China's economy grows above expectations despite the trade war
The Asian giant withstands the impact of tariffs, but records a weakening of domestic demand.
BarcelonaThe Chinese economy slowed growth in the second quarter of the year, but still exceeded analysts' expectations, who had expected a more pronounced slowdown in economic activity due to the trade war launched by the United States. Thus, gross domestic product (GDP, the indicator that measures the size of an economy) registered an expansion of 1.1% compared to the first quarter and was 5.2% above the levels of a year earlier, according to data published this Tuesday by the National Bureau of Statistics.
The quarterly growth of 1.1% is one-tenth below the rate recorded in the first three months of the year, but above the consensus among market analysts. Regarding the 5.2% annual growth, it is also lower than the rate of the first quarter, in this case by two-tenths.
Ultimately, China's GDP continued to grow at a remarkable pace, as is typical of emerging economies, where the growth rate is always higher than that of developed countries. According to the National Bureau of Statistics, China "withstood the pressure and achieved steady improvement despite the challenges." However, China's heavy dependence on manufacturing exports to other parts of the world, particularly the US, led to expectations of a sharper slowdown.
Since his first term in office, between 2017 and 2020, US President Donald Trump has had China in his sights when it comes to tariffs. Trump considers Chinese imports to be a problem in the United States and has therefore repeatedly attacked Beijing with tariffs, despite warnings to increase trade tariffs on the main importer—and also the second-largest economy in the world, if the European Union is not counted as a single bloc. The slowdown in growth is also due to the fact that Chinese exports grew more than expected in the first quarter due to the impact of the first tariffs announced by Trump. To avoid future tariffs, many US companies chose to stock up and buy more products before being hit by new, higher trade tariffs. This cumulative effect was lost in the second quarter.
Until June, US companies had to pay their government a tariff of up to 145% on all products imported from China. However, the negotiations between Washington and Beijing that took place in London in early June they ended up with an agreement to cut tariffs to 55% on Chinese exports to the US and 10% on US exports to China. Both powers are currently maintaining open trade negotiations.
Furthermore, as the US trade war has not been limited to China and has affected many countries around the world—and especially the US's closest trading partners, such as the EU, Mexico, and Canada—China has taken advantage of the change in demand to increase sales to other countries.
Weakened domestic demand
Despite overcoming the adverse external situation, domestic demand has maintained the downward trend of recent quarters. Thus, investment and retail sales slowed more than expected, while real estate prices continued to fall. In fact, private demand "remains fragile and could weaken further in the coming months," said Louise Loo, senior Asia economist at the think tank Oxford Economics, in statements reported by Efe.
"China remains on track to meet this year's growth target, although a slowdown could occur," said Lyn Song, chief China economist at the Dutch bank ING. Beijing set its GDP growth target at 5% for 2025.
