China is holding firm on its ambitious 5% economic growth target for 2025, even as former U.S. President Donald Trump escalates trade tensions with a fresh wave of tariffs. The annual parliamentary session in Beijing reinforced President Xi Jinping’s determination to sustain economic expansion, despite external pressures. However, with Trump raising blanket tariffs on Chinese goods to 20% and signaling even steeper levies ahead, analysts warn that China may have to unleash significant stimulus measures to meet its goal.
The latest developments underscore the high-stakes economic duel between the world’s two largest economies, with both sides facing difficult choices. While China seeks to maintain stability without fueling excessive debt, Trump’s strategy risks further disrupting global supply chains and inflaming economic uncertainty.
For the third consecutive year, Beijing has set a 5% GDP growth target, reflecting its resolve to project economic resilience. Maintaining this goal amid mounting global challenges signals China’s strategic commitment to long-term stability. However, achieving it has grown increasingly complex due to tightening financial conditions, a struggling property market, and the trade war’s intensification.
The Chinese leadership’s decision to stick with the target came less than a day after Trump imposed new tariffs, raising concerns over the impact on trade. Historically, China’s export sector has been a major driver of growth, and the new tariffs threaten to dent the country’s economic momentum.
Yet, unlike past downturns when China aggressively pumped liquidity into the economy, Beijing has so far refrained from large-scale stimulus. Instead, Xi’s administration has focused on managing financial risks, particularly in the overleveraged property sector and local government debt. Now, the question is whether China will maintain its cautious stance or shift toward more aggressive economic support.
China faces a difficult balancing act: Should it unleash massive fiscal and monetary stimulus to counteract Trump’s tariffs, or should it stay the course on financial discipline?
Christopher Beddor, deputy China research director at Gavekal Dragonomics, noted that Beijing could ramp up fiscal stimulus to meet its target, but doing so would require accepting a significant rise in debt.
“It would come down to a political decision about what price they’re willing to pay for growth,” Beddor explained.
Economic analysts estimate that additional stimulus of 1 trillion to 2 trillion yuan ($140 billion to $275 billion) would be needed to offset the impact of lost trade revenue. Some projections suggest an even larger injection may be required if Trump escalates tariffs to the 60% level he hinted at during his campaign.
Shen Danyang, a key figure in drafting China’s economic policies, assured that backup plans are in place. “Policies will be adjusted dynamically to respond proactively to the changing situation,” he said at a press briefing.
One potential way for China to avoid heavy stimulus spending is to negotiate a deal with Trump.
Diplomatic efforts have remained largely stagnant, as Trump and Xi have not spoken since Trump returned to office. However, analysts suggest that Beijing could offer economic incentives to ease tensions, such as increasing purchases of American goods or encouraging Chinese firms like BYD to establish production facilities in the U.S.
Still, Trump’s rhetoric suggests he is prepared to push ahead with further economic pressure. Without negotiations, China will likely be forced to rely on domestic economic measures to weather the storm.
If tariffs continue to rise, Beijing may have no choice but to intervene more aggressively in its struggling property market.
Since 2021, falling property prices have eroded household wealth, weakening consumer spending—a key area China hopes to bolster this year. Restoring confidence in the sector is crucial to stabilizing domestic demand.
Economists point to a precedent: In 2015, China used a major monetary and fiscal stimulus package to finance a nationwide shantytown renovation program, which boosted housing demand and cleared excess inventory. A similar approach could be used again.
“In China, the most powerful macro policy is a merge of monetary, fiscal, and housing policies,” said Larry Hu, chief China economist at Macquarie Group. “They will use that if exports slow sharply.”
Another tool at China’s disposal is currency devaluation, which has been used in past trade conflicts to offset the impact of U.S. tariffs.
During the 2018–2019 trade war, the yuan depreciated by 11.5% against the U.S. dollar, softening the blow of American tariffs. A similar move today could help make Chinese exports more competitive, cushioning some of the damage.
However, Beijing faces constraints. The yuan is already near the weaker end of its preferred range, and a deliberate devaluation could trigger capital outflows, destabilizing financial markets.
Still, analysts believe China could allow the yuan to weaken beyond 7.3 per dollar while implementing at least a 50-basis-point interest rate cut.
Despite Trump’s aggressive tariffs, Xi has so far responded with measured steps rather than drastic retaliatory actions. China has signaled its willingness to endure short-term pain in order to maintain long-term stability.
However, the rhetoric is heating up. Hours after Beijing reaffirmed its 5% growth target, China’s embassy in the U.S. issued a bold statement on social media:
“If war is what the US wants, be it a tariff war, a trade war, or any other type of war, we’re ready to fight till the end.”
This statement suggests that while China is currently exercising restraint, it is prepared to escalate if the situation worsens.
The coming months will be critical.
April: China will release its first-quarter GDP data, providing a clearer picture of the tariff impact.
April–May: The Politburo’s economic meeting will determine whether additional stimulus is necessary.
Mid-2025: If tariffs escalate to 60%, Beijing may have to respond with more forceful measures.
With tensions rising, global markets are watching closely. Will China double down on stimulus, or will it negotiate with Trump? Either way, the battle for economic dominance between Washington and Beijing is far from over.
One thing is certain: Xi’s 5% growth goal is no longer just an economic target—it’s a political statement. And with Trump tightening the screws, China’s response could shape the next chapter of global economic history.
