China's Economic Slowdown Was Brewing Long Before Trump's Latest Tariff Hike
The latest salvo in the U.S.-China trade war, marked by President Trump's announcement of a new 100% tariff increase, might seem like the primary culprit behind China's deepening economic woes. Yet, a closer look at key indicators reveals a more nuanced picture: Beijing's economic momentum was already losing steam well before this latest escalation, a trend that could complicate its response to renewed U.S. pressure. On Sunday, China's Ministry of Commerce was quick to blame Washington for the flare-up, but the truth is, the world's second-largest economy has been grappling with significant internal headwinds for months.
Indeed, data from the first quarter of this year, and even some preceding periods, clearly indicated a deceleration. Manufacturing output, a traditional pillar of Chinese growth, had shown signs of cooling, with the Purchasing Managers' Index (PMI) hovering near contraction territory for several consecutive periods. What's more, domestic consumption, while still robust in certain segments, wasn't expanding at the blistering pace once seen, reflecting perhaps a cautious consumer sentiment amid global uncertainties and a multi-year deleveraging campaign by the government.
For years, Beijing has been attempting to rebalance its economy away from an over-reliance on export-led growth and heavy industrial investment towards a more sustainable model driven by services and domestic demand. This ambitious structural reform, while necessary, inevitably creates friction and can temper growth rates in the short term. Efforts to rein in shadow banking and corporate debt, for instance, have tightened credit conditions for some businesses, particularly smaller private enterprises that often struggle to secure traditional bank financing. This internal restructuring has been a major contributing factor to the observed slowdown in GDP growth, which, while still impressive by global standards, has been trending downwards.
"The narrative that China's economy is solely a victim of U.S. tariffs misses a critical internal story," noted Dr. Li Wei, a senior economist at a Beijing-based think tank. "We've been deliberately engineering a 'new normal' of slower, higher-quality growth. The trade war certainly exacerbates things, but it didn't initiate the deceleration."
Now, with a fresh wave of 100% tariffs looming or already implemented on an expanded list of Chinese goods, the pressure intensifies. This latest escalation, following a breakdown in trade talks, is expected to hit China's export-oriented manufacturing sector even harder, potentially forcing more factory closures and job losses. Businesses that have already been contemplating supply chain diversification to mitigate tariff risks will likely accelerate those plans, shifting production to countries like Vietnam or Mexico.
However, China's official response continues to frame the situation as primarily an external imposition. A statement from the Ministry of Commerce reiterated that the U.S.'s "unilateral actions" were damaging global trade and that China would "take necessary countermeasures." While Beijing has signaled its intent to support domestic industries and boost internal demand through targeted stimulus measures, the challenge now lies in navigating these external shocks while simultaneously managing pre-existing internal economic adjustments. The path ahead for the Chinese economy looks increasingly complex, a convergence of its own making and Washington's aggressive trade tactics.
