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Trade Tensions and Structural Challenges: Why Nomura Cuts China’s 2025 GDP Forecast to 4%

Philip CarterWednesday, Apr 16, 2025 3:27 am ET
2min read

The escalating U.S.-China trade conflict has cast a shadow over China’s economic outlook, prompting nomura holdings to revise its 2025 GDP growth forecast downward to 4% from 4.5%. This downgrade, driven by punitive tariffs, export declines, and domestic structural headwinds, underscores the fragility of China’s growth trajectory amid geopolitical tensions.

The Trade War’s Economic Toll

Nomura attributes the revision to “strong headwinds” from U.S. tariffs, which have surged to an effective rate of 125% by mid-2025—up from 11% before Donald Trump’s return to office. These tariffs directly target China’s export sector, which contributes roughly 3 percentage points to GDP (2.35 points from domestic value-added activity and 0.65 points from manufacturing investment). With U.S. tariffs now exceeding 145% after reciprocal measures, Nomura forecasts a 2% annual decline in Chinese exports for 2025, compared to its earlier neutral outlook.

The trade war’s impact is not isolated. Goldman Sachs and Citigroup have also slashed their China GDP forecasts, citing similar tariff-driven drags. Goldman estimates tariffs alone could shave 2.2 percentage points off China’s 2025 growth, a stark illustration of how external pressures are overwhelming domestic resilience.

Domestic Weakness Compounds Challenges

While China’s Q1 2025 GDP growth of 5.4% initially provided optimism, this figure now appears an anomaly. The data predates the full implementation of Trump’s April 2025 tariffs, which have since intensified trade friction. Domestically, the property sector—a traditional growth engine—remains mired in weakness, with developers struggling under debt and falling home prices. Weak consumer demand further complicates recovery, as households remain cautious amid job market uncertainty.

Fiscal Stimulus: A Band-Aid on a Bullet Wound?

Nomura acknowledges potential fiscal measures, including incremental borrowing of 2.6% of GDP and policy easing, but deems them insufficient to counterbalance trade war impacts. While the central bank may cut interest rates or expand credit, structural issues—such as overreliance on exports and a debt-laden corporate sector—limit the effectiveness of such measures.

Conclusion: Navigating a New Normal

The 4% GDP forecast reflects a sobering reality: China’s economy is increasingly vulnerable to external shocks and internal imbalances. With tariffs now exceeding 145%, exports—a pillar of growth—face an existential threat, while domestic sectors remain lackluster. Even if trade tensions ease, the scars of this conflict will linger, reshaping global supply chains and reducing China’s export competitiveness.

Nomura’s Ting Lu aptly notes the “extraordinarily fluid” nature of U.S.-China relations, but the data paints a grim picture. A 2% export decline and a 2.2 percentage-point tariff drag (per Goldman Sachs) suggest growth could dip further if trade barriers escalate. Investors must brace for a prolonged period of subpar growth, with structural reforms—and not just fiscal stimuli—needed to stabilize the economy.

In this landscape, the 4% forecast is not merely a number—it is a warning that China’s economic trajectory hinges on resolving both external conflicts and internal inefficiencies. Until then, the path to sustainable growth remains fraught with uncertainty.

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NEYO8uw11qgD0J
04/16
Nomura's call: trade war's killing China's exports. No surprise there. Wondering how long it'll take for Beijing to pivot? 🤔
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EL-Vinci93
04/16
@NEYO8uw11qgD0J Long time, maybe?
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istockusername
04/16
@NEYO8uw11qgD0J True, Beijing's pivot might take time.
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Oleksandr_G
04/16
Trade tensions are a new normal? Not sure I want to bet on any one market until the dust settles. Anyone else cautious?
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ButterscotchNo2791
04/16
Trade war's a bearish nightmare for China stocks.
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LoudPossession1953
04/16
@ButterscotchNo2791 Bearish vibes, for sure.
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Really_Schruted_It
04/16
Nomura's call: time to hedge, not to panic.
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According_Crab8170
04/16
@Really_Schruted_It What's your take on the market now?
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Friendly_Affect_1316
04/16
@Really_Schruted_It Agreed, hedge but don't panic.
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bnabin51
04/16
4% growth looks shaky; if tariffs stay high, could be a long winter for China's economy.
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Witty-Performance-23
04/16
China's GDP forecast just got a haircut, down to 4%—thanks, trade war! It's like a game of chicken where both cars crash. U.S. tariffs are now at 145%, which is like 'Breaking Bad' levels of destruction. The property market is a zombie, and fiscal stimulus is just a band-aid. Investors, brace yourselves for a bumpy ride.
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zaneguers
04/16
Interest rate cuts and credit easing might help, but if tariffs stay high, it's like trying to fill a leaky bucket. 🤷♂️
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downtownjoshbrown
04/16
Fiscal stimulus feels like patching a sinking ship.
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Ditty-Bop
04/16
4% GDP forecast feels more like a reality check than a prediction. External shocks are real, and China needs to adapt fast.
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rigalaa
04/16
@Ditty-Bop What do you think China can do to adapt?
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waterlimes
04/16
Trade war's a bear trap? Maybe. But with tariffs this high, I'm hedging my bets on $AAPL over $TSLA for now.
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NoFaithlessness
04/16
@waterlimes I went long on $AAPL last year, feels right for my portfolio mix. $TSLA's too volatile for my taste now.
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yeahyoubored
04/16
@waterlimes How long you planning to hold $AAPL? Curious if you think it outperforms $TSLA in the next quarter.
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Very_Guilty_Lawyer
04/16
Property sector in China is a dead weight. Debt and falling prices aren't a good combo. Where's the bottom line here?
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here_now_be
04/16
@Very_Guilty_Lawyer True, property sector's a drag.
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stydolph
04/16
China's GDP forecast dip shows trade wars' real power—maybe time to pivot away from heavy China exposure?
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superbilliam
04/16
China's GDP forecast tanking, yet again. Time to rethink those diversification strategies, folks. Don't put all your eggs in one basket.
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Sensitive_Chapter226
04/16
Fiscal stimulus might cushion, but it's like putting a band-aid on a bullet wound. Structural issues need real fixing.
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_Ukey_
04/16
China's GDP forecast tanked, but opportunities arise.
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