China: The Art of the No-Deal – ABN AMRO

Following sharp escalation of US-China trade war in April, a direct export shock to the US is imminent. Exemptions for electronics, trade circumvention/reorientation and more support will mitigate this shock. We lowered our annual growth forecasts for 2025/ 2026 to 4.1% (from 4.3%) and 3.9% (from 4.2%), ABN AMRO’s economists note.

Tariff war deepens as US and China exchange blows

“Since ‘US Liberation Day’ on 2 April, the US-China tariff war escalated, with the US now levying 145% on imports from China (and 125% vice versa). Various US officials have hinted at a future US-China trade deal, but so far Beijing does not seem to have much appetite to go along with Trump’s Art of the Deal tactics. China has positioned itself as ‘the adult in the room’, stating it would neglect further US tariff hikes, while also using instruments such as export restrictions on critical metals and blacklisting US firms.”

“Beijing likely feels it now has the upper hand, as the US is facing the macro and market fall-out of its tariff policy. China will also feel pain from the trade war, but does not face mid-term elections next year and hence may have a higher ‘pain tolerance’. China also has leverage on the US via its large holdings of US Treasuries.”

“We already assumed China would be ‘singled out’ in terms of tariffs and had forecast below-trend q/q growth in Q2/Q3. All in all, we adjusted our quarterly growth profile and cut our growth forecasts for 2025/26 to 4.1% (from 4.3%) and 3.9% (from 4.2%). A key downside risk would stem from countries teaming up with the US against China.”