Concerns aired over negative effects on US economy and global supply chains

Gigantic shock'

"A 60 percent tariff on all of this is going to be a gigantic shock to the system," Mary Lovely, a senior fellow at the Peterson Institute for International Economics, or PIIE, said at a recent discussion hosted by the PIIE. "We'll see how Trump's base likes them."

She said some products would disappear from the US marketplace because of higher tariffs on Chinese goods, disrupting supply chains and making companies relocate production and seek alternative sources for intermediate goods.

Lovely said she expected Trump to expand the tariffs on China in the second or third quarter of 2025, which she said could cause inflation in the US to rise 1 percent.

She referred to a paper earlier this year by PIIE economists and scholars that argued that policy changes proposed by Trump on tariffs, trade, immigration policy and erosion of the Federal Reserve Board's political independence would "cause a large inflationary impulse and a significant loss of employment (particularly in manufacturing and agriculture) in the US economy".

The paper also said that Trump's tariffs and other plans would backfire, hurting manufacturing more than any sector.

Lovely said the tariffs might cause "a mild deterioration in Chinese GDP and growth", but "how China reacts" would be the key.

"China has greatly diversified both its import sources and its export destinations. And manufacturing for the United States is no longer a driver of the Chinese economy," said Lovely. "I would also note that China has been quite successful in changing its export destinations to make itself less vulnerable."

She also noted China's willingness to use a more aggressive fiscal policy and invest abroad. "For example, the large Chinese-invested port that opened in Peru (in November) is a sign of its increasing ability to reach alternative markets."

Tao Wang, managing director and chief China economist at UBS Investment Bank, said at the PIIE discussion that although a trade war would be harmful to both countries, China may be better positioned to defend against new tariffs.

"China's interest is to stay integrated with the rest of the world."

Gupta said that because Trump wants to boost domestic manufacturing and employment, it could be an opportunity for China to offer to "invest, produce and sell in the US".

Gupta also said China could seek alternative markets.

"There is a lot of opportunity for China and the EU actually to deepen their relationship, even though it is complicated," he said.