Investing.com -- JPMorgan analysts warned in a note Wednesday that China's economic growth could slow to under 4% in 2025, a level unseen since its entry into the WTO in 2001, if Donald Trump's proposed tariffs on Chinese imports are implemented.
The potential rise in tariffs from 20% to 60% would significantly strain China's economy, impacting emerging markets and commodity prices, according to JPMorgan's latest EM Equity Outlook for 2025.
"Timing and magnitude of the implementation matters," said the analysts, but the base case assumes the higher tariffs will materialize, leading to a marked deceleration in China's growth.
A weaker Chinese yuan is also anticipated, creating downward pressure on commodity prices—an essential growth driver for many emerging markets.
The analysts highlighted the broader implications for the MSCI Emerging Markets Index, projecting modest gains of just 5% for the year-end 2025 target of 1150, as a strong U.S. dollar and restrained monetary easing limit equity upside.
They emphasized that 2025 will be a year for "less beta and more alpha," where thematic investing could provide better opportunities for returns.
JPMorgan outlined four key themes for investors: the strategic evolution of AI, increased power demand driven by data center expansion and renewable energy, rising global defense budgets amid geopolitical tensions, and the winners and losers in global trade reshaped by tariffs.
While the risks to China's economy are high, the analysts note that if China can overcome the barriers posed by tariffs, it could revive emerging market flows and performance.
However, this scenario remains uncertain amid the immense economic and geopolitical challenges created by the potential policy shifts.