When President Trump announced his tariff plan 18 months ago, he made clear who he thought would pay for the bulk of the plan: It wouldn’t be American consumers; it would be foreign exporters who would “eat” the increase in costs.
Indeed, following the trade war between the United States and China, another economic superpower, President Trump warned that the rival force was headed for “big trouble” if it did not embark on a “two-way trade path.”
Yet while 100% of US exports to China are reportedly subject to tariffs – and 88.8% of Chinese exports are subject to US tariffs, respectively – the world’s second-largest economy has continued to grow faster than expected and has apparently increased its exports with the rest of the world.
Hui Shan of Goldman Sachs noted over the weekend that China’s real GDP in the third quarter grew 4.5% year-on-year, slightly above consensus expectations of 4.4%. Shan added that September activity data was stronger than expected, with industrial production growth accelerating to 5.5% on an annual basis and retail sales beating expectations.
The growth target of 4.5% to 5% appears on track, Shan noted.
Those are the kind of numbers that U.S. growth economists can only dream of, especially when policymakers are pushing a plan to grow the economy outside of fiscal woes from the nation’s $40 trillion debt burden. U.S. GDP for the first and second quarters was 2.5% and 2.2%, respectively, according to the Bureau of Economic Analysis.
That said, data analysts point out that while key U.S.-China numbers leave something to be desired on the Western side, the U.S. remains the world’s largest economy and has a GDP per capita that dwarfs China’s. The International Monetary Fund (IMF) reports that China’s GDP per capita is $15,370, while that of the United States exceeds $95,000.
When it comes to deficits, China also appears to be taking steps in the right direction, although it is starting from a more unbalanced starting point. Shan notes: “Contrary to our expectations of moderate fiscal easing at the start of the year, fiscal data showed effective tightening. In the first nine months of this year, combined revenues from the general public budget and government-managed funds increased by 1.4% year-on-year (year-on-year), while expenditures decreased by 3.5% year-on-year.”
“Our estimated augmented budget deficit (AFD) fell from 11% of GDP in December 2025 to 9.4% in September 2026 on a 12-month rolling basis. »
Unlike the United States, China appears to be reducing its budget deficit as a percentage of GDP. However, even though U.S. policymakers have not yet agreed on targets for reducing deficits as a percentage of GDP, they are already operating on a more modest basis: long-term budget projections from the Congressional Budget Office show total deficits averaging 7.2 percent of GDP over the next three decades (2026-2056).
Shan adds: “Although we expect significantly looser fiscal policy in the fourth quarter given recent policy announcements, we have lowered our AFD estimate for the year 2026 to 10.0% of GDP (from 11.5%). »
The trade balance
Even though effective tariff rates between the United States and China have fallen from the heights reached during the trade wars, levies between the two countries remain considerably high compared to those of a few years ago.
Chinese tariffs on U.S. exports stood at 31.9% in August 2026, according to the most recent data from the Peterson Institute for International Economics (PIIE). The levy is 35.2% on Chinese imports to the United States.
However, according to data released by the Chinese government earlier this month, the country’s exports jumped 36.3% in September from a year earlier, their fastest growth rate since February. Even though Census Bureau data suggests that U.S. imports from China are down from 2024, before the tariffs were introduced, levels have increased again since their February 2026 low.
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