Features

China can tough out trade tensions with the US

China’s economy is feeling the pain of US tariffs. But with no elections to bother its leadership, it is in a much better position than the US to ride out the trade war.

Construction site Shanghai  © JOHANNES EISELE/AFP/Getty Images

China won't stimulate its overheated housing market

Construction site Shanghai © JOHANNES EISELE/AFP/Getty Images

"Sad! And self-defeating," says Eugene Robinson in The Washington Post. It's now clear that Donald Trump's "ill-advised gambit of tariffs and bombast" is hurting both the US and China. Yet a president who must face the voters next year is in a much worse position to "stoically withstand the pain" than a tightly-controlled one-party state.

Global stocks swooned early this week amid the introduction of new tariffs by both sides of the trans-Pacific rift. Washington imposed duties on $112bn (£92bn) of Chinese consumer imports including shoes, nappies and food. Beijing started applying tariffs on $75bn of US products, including a 5% charge on crude oil imports. By the end of the year there will be levies on "nearly everything that comes to the United States from China", say Quoctrung Bui and Karl Russell in The New York Times. This year's tariffs will raise prices and leave the average American family around $460 worse off.

A small stimulus

Economists have been cutting their China growth forecasts for next year, notes Bloomberg News. Most now expect GDP to grow at less than 6% in 2020. In the second quarter China's GDP expanded at an annual rate of 6.2%, its slowest pace in 27 years. Yet fearful of inflating new bubbles, "officials have stuck doggedly to a relatively limited roster of stimulus measures", such as tax cuts.

It is easy to see why. Data from the Institute of International Finance shows that China's debt-to-GDP ratio breached the 300% level in the first quarter of this year. Total corporate, household and government debt rose to 303% from 297% a year before. "China is very much past the tipping point where the debt simply can no longer can be ignored," analyst Fraser Howie told CNBC.

Playing the long game

China's leadership has instead settled on a policy of "toughing out trade tensions", says Andrew Batson for Gavekal Research. "Monetary and economic policy is almost ostentatiously calm," despite Trump's provocations, with no plans to ease lending conditions radically. Authorities are also clear that they will not stimulate the overheating housing market. "The closer the US presidential election gets, the less incentive China has to deliver Trump any reward for the trade war."

Recommended

Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
Hong Kong’s brain drain
Chinese economy

Hong Kong’s brain drain

A change in the political atmosphere and a harsh zero-Covid regime has seen thousands flee the global financial hub. Does it have a future – or will S…
14 May 2022
Interest-rate rises mean more pain for stocks
Stockmarkets

Interest-rate rises mean more pain for stocks

Interest rates are rising around the world as central banks try to get inflation under control. That’s hitting stockmarkets – and there is more pain t…
13 May 2022
High inflation will fade – here’s why
Inflation

High inflation will fade – here’s why

Many people expect high inflation to persist for a long time. But that might not be true, says Max King. Inflation may fall faster than expected – and…
13 May 2022

Most Popular

High inflation will fade – here’s why
Inflation

High inflation will fade – here’s why

Many people expect high inflation to persist for a long time. But that might not be true, says Max King. Inflation may fall faster than expected – and…
13 May 2022
Cryptocurrencies are crashing – so how low will bitcoin go?
Bitcoin & crypto

Cryptocurrencies are crashing – so how low will bitcoin go?

The entire cryptocurrency sector is crashing, with bitcoin now well below $30,000. This is big, says Dominic Frisby. So just how low could bitcoin go?
12 May 2022
What the Ukraine crisis might mean for ESG investing
Advertisement Feature

What the Ukraine crisis might mean for ESG investing

The Ukraine crisis has brought many of the issues around ESG investing into sharper focus. Where does the sector go from here?
3 May 2022