The Chinese government announced a significant increase in fiscal stimulus on Tuesday as it seeks to counter the economic strain of new U.S. tariffs. Premier Li Qiang, speaking at the opening of China’s annual parliamentary session, outlined greater efforts to boost domestic consumption to sustain the country’s 5% growth target in 2025.

Li warned that “an increasingly complex and severe external environment” was putting pressure on trade, science, and technology, highlighting concerns that the escalating trade war with the United States could harm China’s vast industrial sector.

Beijing’s Response to U.S. Tariffs

Washington has imposed an additional 20 percentage points in tariffs on Chinese goods, with the most recent 10-point increase taking effect on Tuesday. Chinese producers—who export over $400 billion worth of goods to the U.S. annually—fear further increases will trigger price wars and trade barriers in other markets.

“We worry that they will add another 10% and then another 10%,” said Dave Fong, a Chinese manufacturer of consumer goods.

Despite its $1 trillion annual trade surplus, China is facing weak consumer demand and economic uncertainty at home. Economists say the government must shift away from an export-driven model and stimulate domestic demand to drive growth.

Chinese President Xi Jinping attends the opening session of the National People’s Congress (NPC) at the Great Hall of the People in Beijing, China, March 5, 2025. REUTERS/Tingshu Wang

New Stimulus Measures

In response, Beijing has announced:

  • 1.3 trillion yuan ($179 billion) in ultra-long special treasury bonds (up from 1 trillion yuan in 2024).
  • 4.4 trillion yuan in special local government debt (up from 3.9 trillion yuan).
  • 500 billion yuan in special debt to recapitalize major state banks.
  • 300 billion yuan in consumer subsidies for electric vehicles, home appliances, and other goods.

Analysts believe China is holding back additional stimulus measures until it fully assesses the economic impact of the trade war, according to Reuters.

“March is too early for any major policy stimulus,” said Larry Hu, chief China economist at Macquarie. “At this point, they will keep their cards close to the chest.”

A Shift in Economic Priorities

Notably, supporting domestic consumption has taken precedence over China’s usual focus on industrial and technological advancements.

“For the first time, boosting consumption has been elevated to the top priority among 2025’s major tasks,” said Tilly Zhang, an analyst at Gavekal Dragonomics.

Despite this, some welfare increases appear modest:

  • Minimum pensions for farmers will rise by 20 yuan to 143 yuan.
  • Medical insurance subsidies will increase by 30 yuan per person.
  • Basic healthcare services will receive a 5-yuan boost.
  • Childcare and elderly care subsidies were mentioned but with no specific details.

Delegates in traditional attire walk near the Great Hall of the People after the opening session of the National People’s Congress (NPC), in Beijing, China, March 5, 2025. REUTERS/Go Nakamura

China’s Economic Strategy: Consumption Over Exports

With exports becoming more vulnerable to U.S. protectionism and global trade barriers, China’s leadership is pushing for stronger domestic demand.

“Further expanding the trade surplus is no longer a good strategy,” said Andrew Xia, chief economist at Shangshan Capital Group.

The focus on internal demand is crucial, as China’s household spending remains below 40% of GDP—20 percentage points below the global average. Meanwhile, investment remains 20 percentage points above global norms, reinforcing concerns about economic imbalances.

Outlook and Next Steps

While Beijing’s initial stimulus measures are in place, many economists believe more aggressive fiscal policies may be necessary later in the year to fully counteract the U.S. tariffs’ long-term effects.

For now, China is bracing for further escalation, as businesses and policymakers navigate an uncertain economic landscape.