Chinese economy much weaker now to withstand tariffs: Moody’s

China’s economy is in a much weaker position “this time around” and it will be “substantially harder” for it to withstand a barrage of the US tariffs, Moody’s Analytics said.

Moody’s Analytics published a report following US President Donald Trump’s announcement on tariff hikes for goods from China, Mexico, and Canada.

Trump, who recently took office, announced tariff hikes for goods from China, Mexico, and Canada over the weekend, as was promised during his campaign trail.

The new tariffs, which will take effect from Tuesday, add an extra 10 per cent to tariffs on Chinese goods, sending the effective tariff rate to around 20 per cent when accounting for tariffs already on some Chinese trade, as per the rating agency Moody’s report.

Canada and Mexico announced plans to retaliate with their own tariffs. China hasn’t hinted of such move yet.

“While Canada and Mexico announced plans to retaliate with their own tariffs, China’s response has been more muted,” said Harry Murphy Cruise, Head of China and Australia Economics, Moody’s Analytics, in the report.

“Ultimately, China would rather avoid retaliatory action. The tit-for-tat trade war in Trump’s first term benefited no one; it made trade more costly and hindered growth in both countries. Making matters worse, China’s economy is in a much weaker position this time around; it will be substantially harder for it to withstand a barrage of tariffs,” the report said.

According to Moody’s, China is looking to diffuse tensions with the US.

In late January, Vice Premier Ding Xuexiang told the World Economic Forum in Davos that China was lifting imports of competitive and quality products and services to rebalance its trade, in apparent reference to high trade surplus with the US, as per the report.

China has a large trade surplus with the US.