(Yicai) Feb. 6 -- Swiss banking giant UBS has maintained its prediction for China’s economic growth this year, despite the impact that the US’ newly imposed tariffs are likely to have on China’s exports and economy, on the basis that the Chinese government will probably increase policy support and actively carry out trade negotiations.

UBS maintains its baseline forecast of 4 percent economic growth in China this year, said Wang Tao, Asia chief economist at the Zurich-based bank. The Chinese government is likely to roll out stronger-than-expected policy support to boost domestic demand to withstand any significant external shocks.

The US government said on Feb. 1 it will impose an additional 10 percent tariff on Chinese imports, effective Feb. 4, as part of the Trump administration’s ‘America First’ stance.

The timing of the tariff increase was earlier than expected, but the magnitude was lower than expected, Wang said. There is great uncertainty about the timing and scale of any future tariff hikes on Chinese goods.

The new tariffs will weigh on China’s exports and suppress domestic investment and consumption, Wang said. This could drag down gross domestic product growth by between 0.3 percentage point and 0.4 percentage point.

China responded on Feb. 4 with a series of countermeasures, including an additional 15 percent tariff on US imports of coal and liquefied natural gas as well as an extra 10 percent tariff on crude oil, agricultural machinery, large-displacement vehicles and pickup trucks. It has also added two US companies, PVH and Illumina, to the unreliable entity list.

China's initial response shows that the Chinese government is expected to remain open to negotiation and cooperation rather than seeking reciprocal retaliation, Wang said. However, China's response may change if the US continues to hike tariffs, she added.

The new tariffs are likely to put pressure on the Chinese yuan which may weaken further against the US dollar, UBS said. The greenback is expected to stay strong this year and UBS maintains its forecast for the US dollar and redback exchange rate to reach 7.6 by the end of the year.

China will not proactively or preemptively guide the weakening of the yuan to offset the negative impact of US tariffs, Wang said. On the contrary, the government will continue to slow the pace and scale of the yuan's depreciation in order to maintain domestic financial stability, she added.

Editor: Kim Taylor