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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

"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."

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