China's Economy Grows 4.5% While Tariff Threats Fall Short

China's economy grew 4.5% year-on-year in the third quarter, beating consensus expectations of 4.4% and outpacing U.S. growth that has run at roughly half that rate. The figure comes 18 months after President Trump announced his tariff plan and warned that China was headed for "big trouble" unless it engaged in a "two-way street" of trade.

The warning hasn't aged well. While 100% of U.S. exports to China now face tariffs, and 88.8% of Chinese exports face U.S. levies, the world's second-largest economy keeps growing ahead of expectations and expanding its export business with the rest of the world.

What do the latest numbers show?

Goldman Sachs's Hui Shan noted over the weekend that September activity data came in firmer than expected. Industrial production growth accelerated to 5.5% year-on-year, and retail sales landed above expectations. Shan said China's full-year growth target of 4.5% to 5% now appears on track.

Contrast that with the United States. U.S. GDP grew 2.5% in the first quarter and 2.2% in the second, per the Bureau of Economic Analysis. Those are numbers growth-focused American economists can only envy—especially with policymakers betting they can grow the economy out of fiscal trouble tied to a $40 trillion national debt.

There's context worth noting. The U.S. remains the world's largest economy, and its output per person dwarfs China's. The International Monetary Fund puts China's GDP per capita at $15,370, against more than $95,000 for the United States.

Is China fixing its deficit?

Yes, at least for now—and from a more unbalanced starting point. Shan said: "Contrary to our expectation of moderate fiscal loosening at the beginning of the year, fiscal data have shown 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% yoy, whereas expenditures fell by 3.5% yoy."

The tightening shows up in Goldman's deficit math. "Our estimated augmented fiscal deficit (AFD) narrowed from 11% of GDP in December 2025 to 9.4% in September 2026 on a 12-month moving average basis," Shan said.

Unlike Washington, Beijing is shrinking its deficit as a share of GDP. U.S. policymakers haven't even agreed on targets to reduce deficits, though they're starting from a smaller base. The Congressional Budget Office's long-term budget projections show total U.S. deficits averaging 7.2% of GDP over the next three decades, from 2026 through 2056.

Shan expects the direction to shift near-term. "Although we expect a notably looser fiscal stance in Q4 given the recent policy announcements, we have lowered our 2026 full-year AFD estimate to 10.0% of GDP (vs. 11.5% previously)," she said.

What happened to the trade war?

Effective tariff rates between the two countries have come down from their trade-war peaks, but they remain far above pre-conflict levels. Chinese tariffs on U.S. exports sat at 31.9% as of August 2026, per the Peterson Institute for International Economics. The levy on Chinese imports into the U.S. stood at 35.2%.

China's exporters are shrugging it off. Data released by the Chinese government earlier this month showed exports jumped 36.3% in September compared with a year earlier—the fastest growth rate since February.

The U.S. side tells a more mixed story. Census Bureau data show U.S. imports from China remain below 2024 levels, before tariffs took hold, though they've been ticking up again since their February 2026 low.

The upshot: 18 months of tariffs haven't derailed Chinese growth or its export machine. Whether Trump's pressure produces the "two-way street" he demanded—or simply a permanently costlier trading relationship—remains the open question for both economies.