Economic Adjustment Under the Shadow of Trade War: Strategies and Impacts of China's Key Interest Rate Cut

The series of tariff policies implemented since Trump took office have further escalated global economic and trade tensions, significantly impacting the economic policies and market expectations of countries worldwide under the influence of U.S. tariff measures. Among these, the tariffs imposed on China were particularly severe. Taking the U.S. imposition of a 125% tariff hike on Chinese goods as an example, the trade war triggered by the U.S. government's tariff increases led to heightened tariff barriers between the two nations, altered the flow of global trade imports and exports, and forced a restructuring of global supply chains. Although the U.S. government has now revoked the tariff hikes on China and other countries, the effects of these measures cannot dissipate quickly in the short term.

The trade war initiated by the U.S. government disrupted the global economic and trade landscape, causing significant shocks to international markets and financial systems. Before the U.S. rolled back its tariff policies, the tense economic and trade situation temporarily eased, but the resulting challenges remain urgent issues to address. Against this backdrop, countries affected by the trade war must implement corresponding policy adjustments to mitigate its impact. It was under these circumstances that China adopted a policy of lowering its benchmark lending rate.

The reduction in the benchmark lending rate has, to some extent, lowered financing costs for businesses and boosted confidence among domestic and foreign investors, as well as consumer spending. By cutting the benchmark lending rate, China aimed to stimulate economic growth, stabilize market development, sustain steady expansion, and alleviate the negative effects of the trade war. This measure not only alleviated pressure on export-oriented enterprises but also stimulated domestic market growth, partially offsetting the adverse economic impacts of external shocks.

China's benchmark lending rate cut reduced borrowing costs and spurred domestic consumption and demand, contributing positively to the country's economic development. Following the rate reduction, the psychological preference for saving diminished, encouraging people to spend more, thereby increasing aggregate demand and fostering market consumption. Additionally, the lower benchmark lending rate eased the burden on the market economy, enhanced investor willingness, and further promoted employment and income growth, creating a virtuous cycle.

In the global capital markets, China's benchmark lending rate cut demonstrated its commitment to restoring market stability amid the trade war, guiding future economic development and rebuilding confidence among global investors. While the rate reduction helped mitigate market volatility and uncertainty caused by the trade war, it also carried potential risks, such as currency depreciation and capital outflows, despite its stimulative effect on corporate investment and consumption.

In conclusion, the policy adjustment of lowering the benchmark lending rate, adopted in response to the trade war, stimulated market investment, restored consumer confidence, and promoted economic growth. However, given the complexity of the current global economic landscape, the long-term effectiveness of this measure must be evaluated in conjunction with various domestic and international factors to ensure China's sustained, healthy, and stable economic development.