China’s first quarter growth masks looming tariff crisis

China's 5.4% Q1 growth driven by trade frontloading may not last, as looming tariffs threaten exports and investment.

Shipping containers and gantry cranes are illuminated at night at Yantian Port in Shenzhen, Guangdong province, southern China, on April 14, 2025. Photo by Jade Gao/AFP

By Anna Fadiah and Hayu Andini

China’s first quarter growth beat forecasts, giving Beijing brief cause for optimism as it battles domestic and international economic headwinds. The China first quarter growth figure hit 5.4 percent year-on-year for January through March, driven primarily by a burst in exports. But analysts caution that this momentum may be short-lived as escalating tariffs and weak domestic consumption begin to bite.

A surge on paper, but trouble in the pipeline

According to the National Bureau of Statistics, China's economy expanded at a pace faster than expected, thanks in large part to exporters rushing to ship goods ahead of the latest wave of U.S. tariffs. This tactic, known as “frontloading,” allowed exporters to avoid higher duties that are now taking effect under a fresh round of trade penalties announced by U.S. President Donald Trump.

While the official numbers may have sparked short-term confidence among policymakers, economic experts remain unconvinced that this growth will persist. Yue Su from the Economist Intelligence Unit explained that the strong data was largely artificial: “It’s too early to interpret this strength as a sign of lasting market recovery,” she said.

Su emphasized that the performance was bolstered by not only the trade frontloading but also by state-supported consumption stimulus, particularly in consumer electronics and household appliances—sectors heavily influenced by government incentives.

Tariffs strike back

A deeper look at the broader picture reveals severe risks that threaten to stall this temporary growth spurt. U.S. tariffs on Chinese goods have risen dramatically to 145 percent, while Beijing has retaliated with its own 125 percent levies on American imports. Although China has publicly vowed to "fight to the end" in the growing trade conflict, its outward show of defiance masks serious concern.

Trump’s latest trade measures are widely expected to impact second-quarter data, as the U.S. begins sourcing products from alternative suppliers, cutting deeply into China’s export revenues.

“The escalation happening in April is going to be felt in the second-quarter figures,” said Heron Lim of Moody’s Analytics. “Tariffs will send U.S. firms searching for new sources, slamming Chinese exports and cooling investment.”

Electronics manufacturers are among the most vulnerable. These companies represent a significant portion of China's export volume to the U.S., and the tariffs are expected to cause a pronounced dip in output, further weakening investor confidence.

Louise Loo of Oxford Economics echoed these warnings, noting that the improvement in growth momentum could soon be “short-circuited” by the intensifying trade war. The real test for the Chinese economy, she argues, lies just around the corner.

Beijing braces for impact

In a sign that authorities are well aware of the mounting pressure, Chinese officials on Wednesday acknowledged that the international economic environment has become more “complex and severe.” A top economic planner called for “more proactive and effective macro policies” to maintain momentum and stabilize the situation.

Over the past year, Beijing has already rolled out a series of stimulus measures in response to slowing growth. These have included interest rate cuts, relaxed homebuying rules, and increased debt allowances for local governments. But the actual results have been mixed, and public confidence in the so-called "bazooka stimulus" has waned due to vague details and the lack of a concrete rescue plan.

Now, analysts say that further action may be unavoidable. With the Chinese economy facing increasing isolation from global trade networks, especially the United States, leaders in Beijing may need to shift focus from external demand to internal resilience.

Domestic issues compound external woes

Even without the trade war, the China first quarter growth would be under threat from a series of entrenched domestic problems. Chief among them is the ongoing crisis in the property sector, which has been a major drag on household spending and consumer sentiment.

Sarah Tan of Moody’s Analytics said, “Throwing the domestic economy a lifeline is more important than ever before.” Falling real estate values and a fragile job market are leading many Chinese families to tighten their belts. “The cratering property market remains front and center of households’ concerns,” she added.

The combination of weak property prices and employment uncertainty has caused a dramatic shift in behavior: saving is being prioritized over spending, which is the opposite of what China’s policymakers need to stimulate growth.

Political pressure builds

Hopes are now pinned on a forthcoming meeting of the Politburo, the Communist Party’s top decision-making body. Observers expect the party to outline more aggressive support for the domestic economy, potentially including a multi-trillion-yuan stimulus package focused on consumption, infrastructure, and urban renewal.

Yue Su said, “We continue to anticipate a $2 trillion stimulus package focused on consumption, infrastructure, urban renewal, and shantytown renovation.” But she also noted that the timing and scope of such a package remain uncertain—and may come too late to prevent the effects of the ongoing trade war.

In the meantime, companies and investors remain cautious. Despite the upbeat Q1 data, the mood in boardrooms and factories across the country is subdued. Many fear that the short-term gains from early exports may mask longer-term damage.

Outlook: clouds ahead for China’s economy

As the second quarter unfolds, the stark realities of the trade conflict and internal economic fragilities are likely to dominate the conversation. The headline figure of 5.4 percent growth for Q1 may quickly become a historical footnote if tariffs tighten the screws on trade, investment, and domestic demand.

In the coming months, policymakers in Beijing will face immense pressure to shift gears—from managing expectations to engineering a genuine, sustainable recovery. Whether they can do so without deeper market reforms or international rapprochement remains to be seen.

For now, China first quarter growth has offered a reprieve—but not a solution.