The writer discusses the impact of recent global market volatility caused by evolving US tariff policies, examining how these uncertainties may suppress global economic growth in the short term. He continues by highlighting China’s resilience, driven by strong domestic demand, innovation, and reduced dependence on US trade.

The following article, which considers where the China economy is heading after US President Donald Trump’s tariff moves of 2 April, adds to debate about the extent of the changes this protectionist move will bring. Of course, given recent changes in messages, it is unclear how long or severe a tariff regime might be, or what sectors are most likely to be affected. As ever, we value feedback; please remember that the editors of this news service don’t necessarily endorse all views of guest writers. To comment, email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

The author of this article is Wenli Zheng, portfolio manager of the T Rowe Price Chine Evolution Equity strategy, at T Rowe Price. (More on the author below the article.)

Global markets have recently been volatile as investors find ways of adapting to the evolving policies surrounding reciprocal tariffs from the US. In the short term, the ongoing uncertainty of tariff policies may notably suppress global economic growth. Companies often adopt a wait-and-see attitude in an uncertain environment, potentially delaying important investment decisions. Consumers may also reduce non-essential spending due to concerns about the economic prospects. These negative impacts may gradually emerge in the coming months.

As the primary target of the tariffs, China’s economic growth will inevitably be affected. However, over the past decade, China has made many proactive preparations to navigate potential external shocks. The Belt and Road initiative has expanded its international market, while the implementation of the “dual circulation” strategy has helped to strengthen its organic economic drivers. In addition, breakthroughs and innovations in key technological fields have alleviated supply-side bottlenecks. The deleveraging of the financial and real estate sectors in recent years has reduced systemic economic risks.

Data shows that the proportion of China’s exports to the US as a percentage of GDP has decreased from 6 per cent in 2010 to about 3 per cent in 2024 – including re-export trade. In recent years, China’s economy has experienced relatively sluggish domestic demand but demonstrated resilience in exports. Looking ahead, the challenges confronting exports cannot be overlooked. However, it is reassuring that signs of stabilisation and improvement in domestic demand have emerged without the implementation of large-scale policy stimulus.

From a corporate perspective, the proportion of exports to the US in the average revenue of Chinese-listed companies is about 1 per cent, making it one of the markets with the lowest exposure to the US. The direct impact of tariff barriers on most Chinese listed companies is limited. However, they will still face difficulties brought about by the slowing economic growth. 

New tariff barriers will add impetus to Chinese companies to expand their business globally. Since 2018, many mainland companies have started to shift from being export-oriented to establishing a local presence globally, and this trend is expected to accelerate further. We believe that Chinese companies with core technological capabilities and the ability to adapt flexibly will be well-positioned to seize more growth opportunities amid the changing environment.

Opportunities within consumption and technology
In the short term, the stabilisation of domestic demand will become an important support for the mainland economy. The real estate industry, which has been in distress for the past few years, has seen signs of recovery in top-tier cities. The real estate industry chain accounts for more than 20 per cent of China’s GDP, far exceeding the proportion of exports to the US in the GDP. After years of downturn, traditional industrial sectors such as automation, engineering machinery, and wind power are starting to show signs of turnaround.

Over the past few decades, China’s economy has experienced several shifts and upgrades in its growth drivers. Looking ahead, we believe that consumption and technological innovation will become the engines of economic growth. This is necessary for balancing its economic structure and addressing external pressures.

Since the start of the year, traditional consumer spending has shown signs of gradual recovery. At the same time, new consumption trends are gaining momentum, particularly in tourism and intellectual property (IP)-driven products. The latter involves turning original creative concepts, such as animated characters and visual media, into merchandise and a wide range of derivative products.

In the technology sector, Chinese companies have evolved from followers to leaders across several key areas. As the focus in artificial intelligence shifts from developing large-scale models to applying them in real-world scenarios, Chinese companies are well-positioned to lead. 

They benefit from China’s engineering talent and the ability to rapidly iterate and scale new technologies. In the automotive sector, China has already built a strong competitive edge through the widespread adoption of electric vehicles. Looking ahead, Chinese firms are also poised to make significant progress in autonomous driving technologies.

Volatile markets have opened the door to attractive opportunities caused by short-term mispricing. Uncertainty about future tariffs has led investors to sell off export-related stocks, regardless of individual fundamentals. However, deeper analysis reveals that the share price declines for some companies far exceed the actual impact of tariffs on earnings. Select businesses with forward-looking plans and agile strategies are well-positioned to expand their market share as the competitive landscape reshapes.

About the author
Wenli Zheng is the portfolio manager of the China Evolution Equity Strategy in the international equity division of T Rowe Price. He also co-manages the Great China portfolio of the International Small-Cap Equity Strategy. He is a vice president of T Rowe Price Group, and T Rowe Price Hong Kong Limited.