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

"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.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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.

Advertisement
Advertisement - Article continues below

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."

Advertisement

Recommended

Visit/519858/how-long-can-the-good-times-roll
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Visit/516944/why-wall-street-has-got-it-wrong-again
Economy

Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019
Visit/504252/brace-yourself-the-global-economy-might-be-healthier-than-it-looks
Economy

Brace yourself – the global economy might be healthier than it looks

Investors have been worried about a global recession since the start of the year. But the latest indicators suggest things might not be so bad. John S…
2 Apr 2019
Visit/502393/the-us-economic-downturn-its-only-a-matter-of-time
Economy

The US economic downturn: it’s only a matter of time

With the US economy facing headwinds from trade wars to slowing global growth, talk of a recession is picking up.
22 Feb 2019

Most Popular

Visit/investments/property/house-prices/600840/the-biggest-risk-facing-the-uk-housing-market-right-now
House prices

The biggest risk facing the UK housing market right now

For house prices to stagnate or even fall would be healthy for the property market, says John Stepek. But there is a distinct danger that isn't going …
17 Feb 2020
Visit/economy/uk-economy/600824/how-the-bbc-can-survive-the-end-of-the-tv-licence
UK Economy

How the BBC can survive the end of the TV licence

The TV licence that funds the BBC is looking way past its sell-by date, says Matthew Lynn. Here's how it could survive without it
16 Feb 2020
Visit/economy/600838/money-minute-monday-17-february-good-news-ahead-for-the-uk-economy
Economy

Money Minute Monday 17 February: good news ahead for the UK economy?

Today's Money Minute looks to a week in which we get the latest employment and inflation numbers, plus retail figures for January and a slew of eurozo…
17 Feb 2020
Visit/517625/tr-european-growth-trust-why-investors-shouldnt-overlook-europe
Sponsored

Why investors shouldn’t overlook Europe

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, tackles investor questions around Europe’s economic outlook and the conseq…
6 Nov 2019