China on Wednesday set its GDP growth target for 2025 at “around 5%” as it starts its annual parliamentary meeting amid escalating trade tensions with the U.S, according to a copy of the government work report seen by CNBC.

Beijing raised its budget deficit target to “around 4%” of GDP from 3% last year.

The 4% deficit would mark the highest on record going back to 2010, according to data accessed via Wind Information. The prior high was 3.6% in 2020, the data showed.

The government report laid out a plan to issue 1.3 trillion yuan ultra-long-term special treasury bonds in 2025, 300 billion yuan more than last year. Another 500 billion yuan worth of special treasury bonds will be issued to support large state-owned commercial banks.

The report reiterated Beijing’s plan to “adopt a more proactive fiscal policy.”

In an implicit acknowledgement of sluggish domestic demand, Beijing also revised down its annual consumer price inflation target to “around 2%” — the lowest in more than two decades — from 3% or higher in prior years, according to the Asia Society Policy Institute.

The new inflation goal would act more as a ceiling than a target to be realized. Consumer prices climbed just 0.2% in 2024 and 2023, while producer prices have declined for over two years.

The country’s annual parliamentary gathering, known as the “Two Sessions,” started Tuesday with the opening ceremony of the Chinese People’s Political Consultative Conference — a top advisory body.

The National People’s Congress kicked off its meeting Wednesday and is expected to wrap up its annual session on March 11. The foreign minister and heads of several economic departments are due to hold press conferences in the interim.

Beijing on Tuesday responded with additional tariffs of up to 15% on some U.S. goods from March 10, and restrictions on exports to 15 U.S. companies. China also added 10 U.S. firms to an unreliable entities list that could limit their ability to do business in the Asian country. Many of the named U.S. businesses work in aerospace, defense or with drones.

“We hope to work with the U. S. side to address each other’s concerns through dialogue and consultation on the basis of mutual respect, equality, reciprocity, and mutual betterment,” Lou Qinjian, spokesperson for the third session of the 14th National People’s Congress, told reporters Tuesday morning.

“At the same time, we never accept any act of pressuring or threatening, and will firmly defend our sovereignty, security, and development interests,” he said in Mandarin, via an official translation.

While the world’s second-largest economy grew by 5% in 2024, retail sales growth fell sharply to 3.4% from 7.1% in 2023. The real estate drag persisted, with investments in the sector dropping by 10.6% last year, from the a year earlier.

Investors have closely watched Beijing’s efforts to address the country’s economic slowdown after an unexpected, high-level pledge of support in September prompted a stock rally. Market gains picked up again after Chinese President Xi Jinping held a rare meeting last month with entrepreneurs including Alibaba’s Jack Ma and artificial intelligence startup DeepSeek’s Liang Wenfeng.

“There is no denying that AI technologies are accompanied by some unknown risks and challenges and will bring new tasks in areas like security, social governance, morality, and ethics. … It will inevitably have an impact on production,” Lou said.

“China … is opposed to over-stretching the concept of national security or politicizing economic and technological issues,” he said.

Investors will also be closely watching the parliamentary meetings for further comments on artificial intelligence and China’s efforts to provide regulatory certainty for the private sector.

— CNBC’s Bernice Ooi contributed to this report.

Tariffs on Canada and Mexico took effect Tuesday — and they’re bound to raise prices for consumers, sometimes in unexpected ways, according to economists.

Tariffs are a tax on foreign imports, paid by the United States entity importing a particular good.

President Trump on Tuesday imposed a 25% tariff on Canada and Mexico, the two largest trading partners of the United States. Trump set a lower 10% tariff on Canadian energy.

Businesses typically pass along some of the additional cost of tariffs to consumers, economists said.

Certain products like fruits and vegetables from Mexico and oil from Canada — which are among their major exports to the U.S. — will get more expensive as a result, economists said.

But there are also far-reaching impacts across supply chains that aren’t as clear-cut, they said.

“Tariffs create ripple effects that move through complex supply chains in ways that aren’t always obvious,” Travis Tokar, professor of supply chain management at Texas Christian University, wrote in an e-mail.

Such dynamics make it challenging to predict precise product and price impacts, Tokar said.

For example, take a fast-food chicken sandwich. While none of its ingredients may come directly from Canada or Mexico, the aluminum foil used in its packaging might — driving up costs that could be passed on to consumers, Tokar said.

Nearly everything consumers buy is transported by trucks fueled by refined oil products — meaning the impact of tariffs on Canadian crude oil “could be much broader than it appears at first glance,” Tokar said.

The U.S. sources almost half of its foreign fuel from Canada, according to the Peterson Institute for International Economics.

“Costs eventually have to go through the supply chain” to the end consumer, said Mary Lovely, a senior fellow at the Peterson Institute for International Economics.

The U.S. traded $1.6 trillion of goods with Canada and Mexico in 2024, accounting for more than 30% of total U.S. trade, according to Census Bureau data as of December.

Tariffs on Canada and Mexico are expected to cost the average American household $930 in 2026, according to a January analysis by the Urban-Brookings Tax Policy Center.

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The levies would cost the typical household $1,200 a year after also accounting for tariffs on China, according to a PIIE analysis. (The analysis only considered a 10% tariff on Chinese imports that Trump imposed in February; he put another 10% tariff in place Tuesday.)

That PIIE assessment of consumer impact is “conservative,” said Lovely.

For one, it doesn’t factor how domestic manufacturers would likely respond to less foreign competition, she said.

“These tariffs will increase the price of imported goods,” and domestic producers would likely raise their prices to “match” those of their foreign counterparts, said Alexander Field, an economics professor at Santa Clara University.

All told, Canada and Mexico tariffs could add almost $6,000 to the cost of a car, according to an estimate from investment bank Benchmark Co. in February. That dynamic is expected to drive up car insurance premiums.

“This will be hugely disruptive for the auto industry,” said Douglas Irwin, an economics professor at Dartmouth College and author of “Clashing over Commerce: A History of U.S. Trade Policy.”

Brian Cornell, the CEO of Target, said Mexico tariffs could force the company to raise prices on fruits and vegetables — including strawberries, avocados and bananas — within a few days.

Food prices overall would rise nearly 2% in the short term, according to a Yale budget Lab analysis of Canada, Mexico and China tariffs. Fresh produce prices would rise almost 3%.

Construction materials are also a big export from Canada — including more than 40% of U.S. imports of wood products, according to PIIE.

“If you’re doing a renovation this summer, you’re kind of out of luck,” Lovely said.

Big corporations may be in a position to absorb some of the tariff cost, instead of passing on everything to consumers, Lovely said. But agricultural producers may not be in a position to do that, for example, since there are often “very low margins across the supply chain,” she said.

Even businesses that absorb some of the cost — to avoid immediate sticker shock for consumers — means they have less profit to invest in new equipment, hire workers or develop new products, which creates an “economic drag that is less visible but still significant,” Tokar said.

Consumers would also be impacted by foreign retaliation on U.S. trade — something to which officials in Mexico, Canada and China have already committed.

“You don’t put these kinds of tariffs in place without expecting retaliation, and that’s happening right now,” said Field.

Canadian Prime Minister Justin Trudeau on Tuesday announced a 25% levy on C$30 billion worth of U.S. imports, effective immediately. Tariffs on another C$125 billion in U.S. goods will take effect in 21 days, he said.

Trump responded to the measures Tuesday by vowing additional tariffs on Canada.

Ontario will impose a 25% tax on electricity it exports to 1.5 million homes in Minnesota, Michigan and New York in retaliation to Trump’s tariffs, Doug Ford, the province’s leader, told The Wall Street Journal.

China also announced retaliatory tariffs of up to 15% targeted at U.S. agriculture. U.S. corn will face a 15% levy, while soybeans will be hit with a 10% duty, for example. Mexican President Claudia Sheinbaum plans to announce retaliatory measures on Sunday.