China’s Q2 Growth Stalls as U.S. Trade War Escalates—What’s Next?

Trade tensions with the U.S. slam China's economy—Q2 growth grinds to a crawl.

The Squeeze Is On

Beijing's facing a perfect storm: tariffs biting, supply chains fraying, and global markets twitchy. No official numbers yet, but analysts whisper 'ugly.'

Decoupling or Derailing?

Tech bans and export controls hit hardest. Huawei's déjà vu as semiconductor stocks tumble—Wall Street sharks already circling for discounts.

Yuan in the Crosshairs

PBOC's walking a tightrope: prop up exports with weak currency or defend financial stability? Meanwhile, crypto traders shrug and stack SATs.

Closer: Another 'temporary slowdown' or the start of a long winter? Either way, someone's buying the dip—probably with printed money.

Beijing may announce more spending

Morgan Stanley anticipates that Beijing may roll out an extra fiscal package ranging from 500 billion to 1 trillion yuan starting towards the end of Q3.

June customs figures indicated a rebound in inbound shipments and a modest uptick in exports, driven by a rush to beat an early‑August tariff ceasefire deadline with the United States. Other June metrics on factory activity and consumer spending are forecast to decelerate further.

Quarter‑on‑quarter, the Reuters survey predicts GDP will have risen by 0.9% in Q2, after a 1.2% gain in Q1. Furthermore, analysts expect growth to moderate to roughly 4.6% in 2025, falling short of official ambitions, and slip to around 4.2% in 2026.

Investors are turning their attention to the late‑July Politburo session, anticipating cues on future policy moves and potential new economic support.

According to the survey, experts foresee a 10‑basis‑point reduction in the People’s Bank of China seven‑day reverse repo rate, and a comparable decrease to the loan prime rate, sometime in Q4.

Job market makes output cuts risky

So far this year, authorities have stepped up public works funding and expanded household subsidy programs, while the central bank in May trimmed borrowing costs and pumped cash into markets to offset trade‑related headwinds.

However, experts warn these measures might not be enough to stop the ongoing price drops. June’s producer price index plunged at a rate unseen in roughly two years, underlining persistent deflationary trends.

Observers expect officials to step up cuts to excess factory production and look for new ways to encourage domestic spending.

Analysts say it’s tricky to cut excess output without triggering major layoffs in a weakening job market.

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