Goldman Sachs indicates that rising US-China tariff tensions could lower their 2025 full-year real GDP forecast of 4.5%.
They anticipate that the Chinese government will implement policy easing in the near future to alleviate the adverse effects and support growth.
Impact Of Proposed Tariffs
Furthermore, a proposed additional tariff of 50% by Trump could further affect China’s GDP.
In essence, the latest update points to tempered expectations for China’s economic output next year, with the trajectory now seen as more fragile amid external shocks. Goldman Sachs has revised its projection downward, citing pressure from deteriorating trade conditions—most notably those related to the ramp-up in tariffs between China and the United States. The implication here is straightforward: tighter trade restrictions, especially unilateral measures, act as a brake on external demand, which has long supported China’s industrial base.
The firm expects that in response, Beijing is likely to pivot toward policies aimed at reducing financial stress within its borders. That means we can expect adjustments through monetary levers, fiscal spending, or targeted stimulus—tools the government has used with some swiftness in prior downcycles. Whether that takes the form of direct investment in infrastructure or tweaks to funding conditions for state-owned banks, the direction looks keyed toward offsetting trade headwinds with more internal momentum.
Of particular note is the forewarning around additional levies from the U.S., specifically a potential 50% tariff under a renewed administration. While this measure is not yet policy, markets are efficiently pricing in probabilities and expected outcomes. Should such a move be confirmed, the added pressure on export-led sectors would almost certainly seep through to broader consumer sentiment and industrial production activity by mid-2025.
Reassessment Of Risk Reward Setups
From where we stand, this compels a reassessment of risk-reward setups, especially in relation to rates and commodities tied to Chinese demand. For traders operating with exposure to these variables, it’s less a matter of concern and more a recalibration of strategy. We are entering a stretch where policy switches and external decisions feed directly into volatility—often quickened by cross-border reactions or sentiment shifts.
One approach is to weigh the downside scenarios more than one might under prevailing conditions. Concentration around yuan-denominated assets, and structures dependent on high export velocity, may require additional overlays or downside hedges. It’s also worth accounting for the likely response speed from local policy bodies. If one assumes past behaviour remains a guide, then support measures could arrive before severe dislocations set in—but interventions are rarely perfect in timing or size.
Hurst’s framing of GDP softness reflects more than just tariffs; it captures a feedback loop where confidence erodes as uncertainty builds. This implies that sectors tied to durable goods and high-capex activity—both of which rely on stable outlooks—are poised to face sharper recalibrations.
Across derivatives, this evolving scenario offers re-pricing opportunities, especially where implied volatility tends to discount persistently benign policy responses. The skew may well flatten closer to event dates or statements, but the broader path points to a stickier risk premium in both Asia-facing exposures and US trade-sensitive instruments. Here, positioning early on reduced tail probabilities could limit reaction lag during policy responses.
In short, these movements do not suggest collapse or disruption, but they draw lines between what had been expected and what now needs to be considered.
