Analysis: China’s economy and its influence on global markets

As global trade tensions rise, China finds its economy facing more potential headwinds on top of existing challenges. As one of America’s largest trading partners, China is now caught up in expanded tariff orders President Donald Trump handed down in February and March. Most Chinese goods exported to the U.S. are now subject to 20% tariffs that weren’t in effect before Trump returned to the White House in January.

Higher tariffs for goods shipped to America aren’t the only economic challenge facing the country. While in 2024 China managed to generate 5% Gross Domestic Product (GDP) growth, significant domestic issues have kept China’s growth rate more subdued than in the past.

China continues to struggle with meeting its domestic consumer spending goals, and economic growth remains below peak levels.

“China is trying to spur more consumer-led growth rather than investment-led growth, but with limited success so far,” says Rob Haworth, senior investment strategy director for U.S. Bank Asset Management. “While China isn’t downplaying the importance of its export activity, expanding internal demand is their bigger challenge.”

China’s government is now implementing a range of stimulus measures, including one that provides consumers with partial rebates for specific purchases. This move is designed to boost retail activity. China’s retail sales took a step back last year, growing only at half the pace of the prior year’s sales. 1 Stimulus plans are also designed to, at least in part, offset some of the potential slowdown in export activity should trade wars persist.

“Another challenge for China is its real estate market overhang,” says Haworth. “China has yet to enact meaningful policies to take surplus housing out of the hands of speculators, who found themselves over-extended in real estate.” Housing demand has dampened and in 2024 and early 2025, Chinese housing prices continued to slide.²

More tariffs

President Trump campaigned heavily on imposing new tariffs on goods America imports from overseas, with a primary emphasis on China, though he also targeted other countries such as Canada and Mexico. While some proposed tariffs were delayed, Trump went ahead with expanded tariffs on Chinese imports.

If China’s trade activity with the U.S. slows, Haworth believes they’ll try to expand trade with Europe, where the economy is showing more favorable signs.

To counter new U.S. levies, in March 2025, China added tariffs to U.S.-produced farm commodities. This includes a 15% tariff on chicken, wheat and corn, and a 10% tariff on soybeans, pork, beef and fruit.³

Stocks stage a modest comeback

In 2024, China’s equity markets snapped a three-year losing streak. Stocks were headed lower early in the year, but managed to bounce back. Momentum faded recently and the CSI 300 Index, a key measure of Chinese stock performance, is essentially flat year-to-date.3 “Markets are still working off some of the fervor that resulted from a modest government economic stimulus program implemented in early fall of 2024,” says Haworth. “That gave the market an immediate, positive jolt, but equities have slowly trended lower since October last year.”

In January 2025’s early weeks, the CSI 300 Index is still 32% below its February 2021 peak.⁴

China’s still dominant global role

Despite its recent challenges, China remains the world’s second largest economy (after the United States). However, the rapid growth that characterized recent decades has given way to more muted GDP expansion.²

Notably, China’s per capita GDP (a basic measure of income per person) is far below that of most developed nations, indicating the country’s growth has a long way to go. China’s per capita GDP is $13,870, compared to the U.S. per capita GDP of $89,680.⁵

Investment opportunities

Although it is the world’s second largest economy (after the United States), investors still classify China as an emerging market. Within that category, it is by far the largest single country contributing to the MSCI Emerging Markets Index, representing more than one-quarter of the Index.⁴ “Any investor who puts money to work in a broad, emerging market index likely owns a significant position in Chinese stocks,” says Haworth.

In 2024, the MSCI Emerging Markets Index generated a total return of 7.50%, outpacing the MSCI EAFE developed markets index, but significantly underperforming U.S. markets. By comparison, the S&P 500 earned a 25.02% total return. In 2025, the situation is reversed. Through March 10, the MSCI Emerging Markets Index is up 3.81% on a total return basis, compared to the S&P 500’s -4.30% total return.6

“Part of the recent Chinese market comeback can be attributed to its own artificial intelligence (AI) innovations,” says Haworth. “The AI platform DeepSeek and another created by the technology firm Alibaba could have a positive impact on China’s economy.”

Investing in international stocks

International stocks should be part of a well-diversified portfolio. “We believe global stocks represent a reasonable opportunity, as they offer more attractive valuations than U.S. stocks,” says Haworth.

Haworth says an emerging market index, where Chinese stocks play a prominent role, may be an effective way to incorporate into your portfolio a position in China’s market.

Any changes to your investment strategy should be consistent with your goals, time horizon and risk appetite. Talk with your U.S. Bank wealth professional to review your current financial plan and determine whether there is an opportunity to incorporate emerging market stocks – with exposure to China – into your broader, well-diversified portfolio.

Note: The MSCI Emerging Markets Index captures large and mid-cap equity performance across twenty-four emerging market countries. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments.