China’s economy surges, but tariffs effect is yet to be seen

China’s economy performed better than expected in the first quarter of the year – but it reflects a moment in time before the explosive trade war with the US, which has seen the world’s two biggest economies effectively decouple.

Economists had predicted that gross domestic product would grow by about 5.1% in January to March, compared with a year earlier. In the end, it grew 5.4%.

But these impressive figures obscure the very serious challenges China’s economy is facing in the wake of Donald Tump’s trade war – and it is almost certain growth will not remain this strong as the year goes on.

The worst of Trump’s tariffs came into force in April, meaning they were not reflected in these figures.

In Q1, China faced an initial 10% tariff on all its exports to the US – which was then raised to 20% from 10 March.

But Beijing had planned and prepared for taxes at that level, and thus the impact was pretty minimal.

Growth was also propelled by the fact that exporters rushed to deliver orders in bulk before the tariffs came into force.

In fact, exports surged a remarkable 12% in March compared to a year earlier, a rate that will not be sustained.

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Current tariffs on goods sold from China to America stand at 145%. Trade at that price is all but impossible.

Given exports account for a fifth of China’s economy, and consumer confidence domestically is still sluggish, there will be a significant hit to come.

Experts agree China will most likely miss its annual growth target of 5% – the question is by how much.