Large US tariffs would hurt China’s export sector but less than many suppose. We estimate that the direct impact of even a 60% US tariff on goods from China would be well under 1% of China’s GDP. The bigger challenge for policymakers could be the pressure this would put on the renminbi. The impact of US tariffs would be magnified if they triggered a broad global retreat behind protectionist walls. But we think that other major trading economies and China itself are likely to want to preserve many of the benefits of open trade. Indeed, a pivot to tariffs and isolationism by the US that antagonised traditional allies might provide an opportunity for China to undermine Western controls on its access to strategically-important technology.
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