Ten years ago, China shielded itself from the global financial crisis with a wall of stimulus. Facing U.S. President Donald Trump’s tariff onslaught, that feat of self-preservation looks much harder to repeat.

The simple reason is that even if President Xi Jinping’s government were to conclude that the economy needed massive spending to keep growth on track, he is hamstrung by China’s huge debt. At over 260 percent of gross domestic product, total debt is more than four times what it was in 2008—and much of that is the legacy of stimulus past.

The Xi administration’s two-year drive to tame credit growth has consumed political capital, which makes calibrating a response to a slowing economy amid trade tensions a delicate task for policymakers. “There’s a very strong lobby power in China that’s saying, ‘Domestic activity is weak, the tariff war is escalating, China should react more aggressively to prevent a slowdown,’ ” said Haibin Zhu, chief China economist at JPMorgan Chase & Co. in Hong Kong. But if the government “stops the deleveraging procedure and reverses course, that would be the biggest policy mistake China could make.”

The economy started strong in 2018, buoyed by robust global trade. Yet the unexpectedly sharp impact of the campaign to curb credit hit just around the time that higher U.S. tariffs on $50 billion in Chinese imports took effect and Trump raised the prospect of targeting an additional $200 billion in goods, sending Chinese stocks and the currency into a tailspin.

GDP growth is expected to slow to 6.6 percent this year and 6.3 percent in 2019. Those predictions don’t factor in Trump’s most recent threats to blanket all Chinese imports with duties, which would slice about 1.3 percentage point off those numbers, according to Morgan Stanley. The impact on employment also would be severe: In a worst-case scenario that envisages an across-the-board 25 percent tariff, China could lose 5.5 million jobs, according to Zhu’s calculations.

To keep the economy insulated in a protracted trade war, China may need to sacrifice the progress it has made over the past two years in managing its debt. Beijing has tightened controls on local government finances and imposed restrictions on companies’ overseas investments, which together with other measures have dampened annual credit growth to about 10 percent, from above 12 percent two years ago. Regulators have also reined in the shadow banking sector, steering lending business back to mainstream banks, where it can be more closely monitored.

These efforts would have had a more severe impact on economic growth had it not been for some targeted measures. The central bank has cut the amount of cash that banks must hold as reserves, freeing up money for lending, and added enticements for investors to extend loans to small businesses. Beijing is also pushing local governments to issue their annual quota of special bonds for infrastructure financing earlier than planned, with more than 1 trillion yuan ($146 billion) due to come onto the market from August to October. Some types of big-ticket projects that had been nixed at the height of the belt-tightening campaign—such as new metro lines—may now get the green light.

By contrast, real stimulus would involve cutting the central bank’s benchmark interest rate (an unwise move at a time when emerging-market currencies are under pressure), loosening curbs on the property sector, and increasing the size of the fiscal deficit. Steps of that magnitude aren’t likely yet, according to Robin Xing, Morgan Stanley’s Hong Kong-based chief China economist.

That is because at the current level of debt, such measures could trigger a crisis by tipping the economy into a vicious cycle where runaway property prices cripple consumer spending. Residents of Beijing and other large cities are already cutting back on purchases in the face of double-digit rent increases.

A U.S.-China blowout is not the most likely scenario analysts are contemplating, given renewed efforts by the Trump administration to negotiate a truce. The impact of U.S. tariffs already in place and those in the works could slice about 0.3 percentage point from China’s GDP growth next year, according to a Bloomberg survey of economists.

JPMorgan Chase’s Zhu sees the government paring back its growth target next year to a range of 6 percent to 6.5 percent, vs. about 6.5 percent this year. That would be consistent with Beijing’s long-stated objective of not trying to maximize growth at any cost, but rather steering the $12 trillion economy, which has been slowing as it matures, on a glide path.

For the moment, China is still on course to become a “high-income” nation—a World Bank designation for countries with gross national income per capita above about $12,000—within a decade and match the size of the U.S. economy not long after that. Unless those goals begin to look in doubt under the pressure of Trump’s trade war, leaders in Beijing are showing every sign of wanting to just wait it out.

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