They estimated that a 60% tariff would slow China's GDP growth by 2.5 percentage points over the subsequent 12 months. About half of that drag would come from lower exports, with the rest from indirect impacts on consumption and investment.
Stimulus policies from Beijing to mitigate the impact of the tariffs would ease the economic drag to 1.5 percentage points, leading UBS to estimate that GDP growth in 2025 and 2026 may fall to around 3% if the hike is implemented mid-2025.
"Even if the tariff hike is reduced or avoided, some damage to the economy would be inevitable as producers and US importers move away from China to avoid the risk and uncertainty," UBS warned.
"Moreover, the lingering impact of weaker employment and capex will also weigh on the domestic economy."
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