A seismic tariff escalation from President Donald Trump has triggered a sharp downgrade to China's growth forecasts, with Goldman Sachs now projecting a sluggish economic recovery and warning of deep labor market consequences.

In a note shared Thursday, a team of Goldman Sachs economists led by Andrew Tilton said the sudden tariff spike announced on April 9 — lifting U.S. duties on Chinese goods to 125% — is poised to hammer China's GDP and jeopardize up to 20 million export-linked jobs.

Tariff Tsunami Raises Economic Stakes

Trump's move follows a tit-for-tat exchange with Beijing, which retaliated by hiking tariffs on U.S. goods to 84%, up from prior levels. The cumulative effect has pushed the U.S. effective tariff rate on Chinese goods from 11% at the start of his administration to today's eye-watering 125%.

According to Goldman's estimates, that jump alone could slash Chinese real GDP by 2.6 percentage points — with a 2.2 percentage point impact hitting as soon as 2025.

The investment bank now forecasts China’s real GDP growth to slow to 4.0% in 2025 and 3.5% in 2026, down from previous estimates of 4.5% and 4.0%. That's well below the Chinese government’s official growth target of "around 5%" for the year.

Goldman said these projections reflect not just U.S. tariff pressure, but also a weakening global economy that's expected to further erode Chinese exports.

“We believe that achieving 4.5% GDP growth this year would be very challenging,” Goldman Sachs said.

Can Stimulus Save the Day?

To cushion the blow, Beijing is expected to roll out an aggressive mix of monetary and fiscal policy easing. Goldman now forecasts an additional 60 basis points in policy rate cuts in 2025 — up from a prior 40 basis point estimate — as well as a substantial increase in the "augmented fiscal deficit" – a broad measure of public sector borrowing – from 10.4% to 14.5% of GDP.

Credit growth will likely accelerate too, with Chinese officials signaling relaxed property restrictions and stronger infrastructure stimulus to help offset demand destruction from abroad.

Still, Goldman said even these measures won't be enough to fully neutralize the negative effects of Trump's tariffs.

"While we anticipate that policymakers achieve 4% real GDP growth," the bank wrote, "our alternative measures of growth could fall below this level."

The iShares China Large-Cap ETF ( FXI ) — a popular U.S.-listed fund tracking major Chinese companies — has dropped 12% since Trump first unveiled a 34% "reciprocal" tariff on Chinese imports. With the full tariff now at 125%, sentiment remains fragile.

The Human Toll: Millions of Jobs On The Line

Perhaps most concerning is the potential damage to China's workforce. Goldman estimates that between 10 million and 20 million Chinese workers are exposed to sectors heavily dependent on exports to the United States.

As exports to the U.S. come under strain, China's labor market may suffer a major blow, fueling job losses in manufacturing centers and deepening the challenges of its uneven post-pandemic rebound.

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