In its latest year-ahead outlook, Morgan Stanley has assumed a slowly upwards in tariffs on imports from China, expecting an increase in tariff rates via the next few years. The investment bank anticipates a phased implementation beginning within the first region of 2025, with the weighted average tariff on all Chinese imports increasing from the current day 10 per cent to 26 per cent by the end of 2025, and accomplishing 36 per cent by the end of 2026.
Additionally, the United States funding bank expects some products to face headline tariffs as excessive as 50 per cent by the end of 2025 and 60 per cent by the end of 2026.
However, Morgan Stanley additionally mentioned tremendous uncertainties surrounding the dimensions and timing of those tariff hikes in light of the latest remarks with the aid of US President-go with Donald Trump. Trump’s administration, which had already released a trade war in opposition to China during his previous term, has threatened to impose tariffs as high as 60 per cent, probably severely impacting China’s exports, specially in terms of profitability.
The US President-elect with has also indicated that upon assuming office in January, he might impose an “additional 10 per cent tariff” on a huge variety of Chinese goods entering the US, sparking concerns over the potential for even higher tariffs. However, Morgan Stanley noted that the President-elect’s comments have tended to recognition at the headline tariff rate more, instead of the effective weighted average price.
“We well known that uncertainties continue to be excessive with regard to the significance and timing of tariffs,” Morgan Stanley analysts wrote. “The latest comment from President-elect Trump on enforcing ‘an additional 10 per cent tariff, above any additional tariffs, on all of many products from China’ has accelerated uncertainty over the imposition of tariffs.”
The brokerage additionally talked about that Trump’s announcement, which changed into made in the context of addressing troubles like fentanyl trafficking, may also sign the opportunity of further tariffs aimed at addressing trade imbalances.
While the bank anticipates tariffs will rise as a part of the broader trade policy agenda, the exact scope and implementation stay uncertain, specifically with the incoming management’s evolving stance on trade with China.
In the meantime, the phased increase in tariffs anticipated by Morgan Stanley indicates a growing economic stress on US-China trade relations, with implications for supply chains, client prices, and overall economic growth in both countries.
Can there be a trade deal between US and China?
Though some investors have raised the possibility of a US-China trade deal as a way to de-escalate tensions, Morgan Stanley sees several major obstacles in the way. It indicates that any deal among the US and China would face a maze of political, economic, and strategic hurdles—making the prospects for a smooth trade agreement far from certain.
First, the underwhelming consequences of the Phase 1 US-China trade deal—in particular the failure to meet purchase targets—may additionally make US hesitant to pursue similar offers in the current cycle. This displays the fact that there may be limited products that China is willing to buy from the United States, in particular when higher-value goods like advanced chips are at the heart of the dispute, noted the investment bank.
On the other hand, the US is also probable to resist selling these higher-end products, particularly next-generation semiconductors, which are vital to China’s technology ambitions.
According to Morgan Stanley, one potential compromise could be a new deal where the US permits Chinese companies to onshore some of their manufacturing operations to the US. However, even this proposal faces big challenges, as both sides navigate the complexities of worldwide deliver chains and national security concerns.
China prepares for difficult tariff hikes under Trump
In anticipation of the tough tariff increases promised by Trump, China announced new policy measures on Thursday aimed toward bolstering its export area within the face of “unreasonable foreign trade restrictions.”
The move displays China’s determination to protect its economy from the results of higher US tariffs, in addition to stabilise its export markets amid growing trade tensions.
Meanwhile, worldwide credit ratings agency S&P Global Ratings has downgraded its economic growth forecast for China, bringing up the capacity effect of Trump’s tariff threats. In a report, S&P revised its 2025 and 2026 GDP increase projections for China, reducing them to 4.1 per cent and 3.8 per cent, respectively. This marks a discount of 0.2 percentage factors for 2025 and 0.7 percentage points for 2026, as compared to its in advance forecasts in September.
S&P economists warned that the heightened tariff threats should substantially disrupt China’s economy.
“We expect on China’s economy to be hit by the United States tariff will increase on its exports. Exports will obviously grow much less, and investment too,” the report said.
S&P analysts also stated that the uncertainty surrounding potential tariff hikes may want to effect investment even earlier than the tariffs are formally applied, as businesses may also delay decisions in reaction to the developing trade risks.
The trade tension comes amid President-elect Trump’s broader pledge to impose price lists at the US’ three biggest trading partners—China, Canada, and Mexico. If carried out, the proposed tariffs would target a broad range of industries, including oil, natural gas, agriculture, and manufacturing. Such measures may want to disrupt long-establishment trade patterns and worldwide supply chains, affecting not China but also other key global economies.
As Trump prepares to take workplace, the global economic community remains on edge, carefully monitoring his subsequent steps regarding tariffs. For China, the implementation of extra stringent US tariffs may want to lead to further challenges for its export-driven economy, which has been a key engine of increase for the country during the last few years.
