The International Monetary Fund said the latest escalation in the trade war risks saddling China and the US with losses that would only get worse after this year.
Even before the most recent tit-for-tat tariffs, the IMF trimmed its projections for China’s growth to 4% for both this year and next, according to the fund’s World Economic Outlook released Tuesday. The forecasts represent cuts of 0.6 percentage point and 0.5 percentage point, respectively, from the IMF’s previous predictions published in January, before Donald Trump reclaimed the presidency.
The downgrades were made under a reference forecast based on information available as of April 4, only taking into account trade measures such as Trump’s initial 34% “reciprocal” tariffs on top of a fentanyl-related 20% tax, as well as China’s retaliation. Since then, Trump hiked new levies to a combined 145% on most Chinese goods — prompting Beijing to hit back with duties of 125% on the US.
If the measures announced on April 5-14 were considered and assumed to be permanent, “the losses in China and the United States would become larger in 2026 and beyond,” the IMF said.
It didn’t provide forecasts for individual countries in such a scenario but anticipates global growth at about 2.8% for 2025, unchanged from its reference forecast, and about 2.9% for next year — or 0.1 percentage point less than before the higher tariffs hit.
In January, the IMF predicted the world economy would expand 3.3% both this year and in 2026.
Now the outlook is rife with uncertainty after Trump’s chaotic decision making resulted in an escalating cycle of retaliation with China. Effective tariff rates between the two countries are far above the 60% level many economists say will decimate bilateral trade.
US Treasury Secretary Scott Bessent acknowledged on Tuesday that the elevated tariffs the two countries have imposed on each other were unsustainable and the two sides will have to find ways to de-escalate, according to people who attended a closed-door investor meeting in Washington.
Trump later said he plans to be “very nice” to China in any trade talks, his most positive comments yet since the trade war heated up. The final tariffs on China wouldn’t be “anywhere near” the 145% level he has set, he added.
Market sentiment got a boost from remarks made by senior US officials, with Chinese shares listed in Hong Kong gaining as much as 2.5% in Wednesday morning trading.
While the tariffs are expected to take a toll on both economies, they are having an unpredictable effect on trade flows for now, possibly in part due to Trump’s frequent policy twists.
Chinese trade showed resilience this month, as the US president spared many electronic products from some of his levies and paused the wave of tariffs he plans against most countries. While China sharply reduced imports of many US commodities last month, it appears US buyers are still trying to get goods from the Asian nation.
US exports to China will fall rapidly, but “the decline in US import from China is expected to be more gradual,” economists at Australia & New Zealand Banking Group said in a report on Tuesday. “Given a different degree of substitutability, China’s retaliation could lead to an enlarged US trade deficit with China, rather than a reduction.”
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