China Pledges More Borrowing and Interest Rate Cuts to Counter Trump’s Tariff Threats

By Evans Momodu
4 Minute read


China has announced plans to expand fiscal and monetary support as it braces for the potential economic fallout from the re-imposition of US tariffs under Donald Trump’s incoming presidency.

The government outlined measures to bolster domestic growth at the Central Economic Work Conference (CEWC), signaling a shift toward more aggressive economic stimulus policies.

Key Developments:

1. Increased Borrowing and Deficit:

   • Beijing plans to raise the budget deficit and expand central and local government debt issuance.
   • This marks a prioritisation of economic growth over financial risk mitigation, as indicated by dovish tones from the CEWC and Politburo meetings.

2. Monetary Easing:

   • The government intends to cut interest rates and reduce bank reserve requirements.
   • Aiming to stabilise the yuan, China reaffirmed its commitment to maintaining exchange rate stability at “reasonable and balanced levels.”

3. Export Challenges and Tariffs:

   • With Trump threatening tariffs on $400 billion of Chinese goods, the export sector faces significant risks.
   • Manufacturers, already struggling with thin margins and industrial overcapacity, may relocate production to evade tariffs.

4. Boosting Domestic Consumption:

   • Efforts will focus on raising household incomes, pensions, and expanding subsidy schemes for cars, appliances, and other goods to stimulate domestic demand.
   • Analysts highlight these measures as critical, given the ongoing property market slump and weak consumer confidence.

Economic Outlook:

• Analysts remain cautious about the efficacy of these measures. Growth forecasts for 2025 hover around 4.5%-5%, with the “Trump shock” expected to pressure exports and capital investment.
• Zhiwei Zhang of Pinpoint Asset Management emphasized the importance of stimulus scale, while Xu Tianchen of the Economist Intelligence Unit warned that maintaining 5% growth would be challenging.

Broader Implications:

China's policy shift reflects its need to counteract both external trade pressures and domestic economic weaknesses.

While increased fiscal and monetary flexibility may avert a sharp downturn, achieving robust growth will depend on the successful implementation of consumption-boosting measures and the ability to navigate US-China trade tensions effectively.
Source: CNN