Chinese exports to the US have been subject to the Trump tariffs since last July. According to the US President, this is wrecking the Chinese economy but does the Asian power ultimately have more stomach for this fight?<\/p>\n
Growth in the Chinese economy has been slowing steadily for much of the last decade. From a rate of 12 percent annual gross domestic product growth in 2010, the figure is now little more than half that.<\/p>\n
Last year, the Chinese economy grew by 6.6 percent. A rate like that would be cause for huge celebration in practically every major western economy, but it was actually the slowest year of growth China has experienced since 1990.<\/p>\n
2018 was also the year in which US President Donald Trump started slapping tariffs on Chinese imports, a practice which he continued in recent days with a fresh wave of levies. A crude calculation might directly connect that fact with China\u2019s 29-year low growth rate. But is it as simple as that?<\/p>\n
\u201cI think the slowdown is probably 50 percent due to the trade war and 50 percent due to the hit to credit from the crackdown on shadow banking, which has hurt the credit channel to the private sector,\u201d Allan von Mehren, Chief Analyst with DanskeBank, told DW.<\/p>\n
He believes the biggest impact the tariffs have had on the Chinese economy over the last year has been the uncertainty they have prompted and the subsequent damage to business sentiment. \u201cIt has given a hit to consumer spending and private investments, not least in the export sector,\u201d he said.<\/p>\n
Chinese exports are slowing down due to the tariff war Inspecting the damage<\/p>\n
Chinese economic data released on Wednesday was not encouraging. China retail sales growth (year-on-year) slipped to its weakest reading since 2003, confirming von Mehren\u2019sassertion that consumers are cutting back.<\/p>\n
Another sign of trouble came from the country\u2019s industrial production data. Growth there slipped significantly in April, falling sharply from the March figures.<\/p>\n
Yet overall, the economic data suggests there is little direct damage to the Chinese economy from Trump\u2019s tariffs, beyond the aforementioned impact on sentiment, which has affected investment as well as consumer spending.<\/p>\n
According to van Mehren, that impact has been broad-basedbut one exception is in the construction sector, where government stimulus packages have helped keep home sales robust.<\/p>\n
Muddling through with stimulus packages<\/p>\n
The Chinese government itself has acknowledged the impact the trade conflict with the United States is having on the economy, though. In March, the government revised its 2019 growth rate target to between six percent and 6.5 percent, with Li Keqiang, the Chinese Prime Minister, citing \u201cprofound change in our external environment,\u201d a clear reference to the ongoing trade issues with the US.<\/p>\n
Since July, when the US tariffs started to come into full effect, Beijing has adopted fiscal stimulus measures aimed at boosting investment and spending.<\/p>\n
As well as that, the government has tried to improve access to credit for the private sector, in the face of the crackdown on the so-called shadow banking system, an industry of unregulated lending which operates outside of the regular banking system.<\/p>\n
The fact that the economy continues to cool in the face of such measures hints at the significant challenges Trump has presented the world\u2019s second largest economy.<\/p>\n
Another risk, according to van Mehren, is that some manufacturing companies will switch production from China to other Asian countries, such as Vietnam. \u201cThis is very hard to quantify, but anecdotal evidence suggests it is happening,\u201d he said.<\/p>\n
Who pays the tariff?<\/p>\n
It started with solar panels. Then it was steel and aluminum. Now, practically all the $476 billion worth of goods China exports to the US annually (see graphic above) are subject to some kind of tariff, ranging in scale from 10 percent up.<\/p>\n
But it\u2019s worth remembering that tariffs are not automatically paid by Chinese exporters. Much of the time, US importers will choose to pay the additional cost. Although the volume of Chinese exports to the US started to decline once the US tariffs kicked in around July, there are still more than three times as many Chinese exports to the US as the other way around (see graphic below).<\/p>\n
Even at a higher cost, American firms and businesses are still choosing to buy Chinese in copious volumes. That may partly explain why Trump has sought to increase the pressure on China in recent weeks, his latest move to declare telecommunications equipment made by \u201cforeign adversaries\u201d \u2014 a clear nod to Huawei \u2014 a national emergency.<\/p>\n
In the fight<\/p>\n
According to van Mehren though, China is able to deal with an escalation of trade hostilities.<\/p>\n
\u201cI don\u2019t think a resolution is urgent for China and they will not give any extra concessions due to the increased pressure,\u201d he said. \u201cI think they are preparing for a long trade war now and believe they have more endurance.\u201d<\/p>\n
While he does believe that the need for government stimulus packages has delayed some longer-term Chinese objectives such as the transitioning away from state-owned enterprises and infrastructure projects, he says the trade conflict is in many ways a \u201cstrategic gift\u201d for China, in that it has hammered home the need for certain economic reforms in the country.<\/p>\n
\u201cWhat matters the most for Chinese outlook are reforms, education and investment in upgrading production,\u201d he says. \u201cAs long as China shows a commitment to this, I believe the outlook is still broadly positive.\u201d<\/p>\n
Yet, there is a deeper concern arising from the trade conflict, he says, away from the pure economics, and that\u2019s the overall deterioration in Sino-US relations.<\/p>\n
\u201cThe anti-Chinese sentiment in the US seems to be rising fast and I fear that the US will start challenging China on all fronts,\u201d he says.<\/p>\n
Should that mean some form of military conflict, whether over Taiwan or South Chinese Sea territorial issues, the current trade conflict might feel rather tame in comparison.<\/p>\n","protected":false},"excerpt":{"rendered":"
Chinese exports to the US have been subject to the Trump tariffs since last July. According to the US President, this is wrecking the Chinese economy but does the Asian power ultimately have more stomach for this fight?<\/p>\n","protected":false},"author":3,"featured_media":1965,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_FSMCFIC_featured_image_caption":"US President Donald Trump and Chinese President Xi Jinping at a working dinner after the G20 leaders summit in Buenos Aires last December REUTERS","_FSMCFIC_featured_image_nocaption":null,"_FSMCFIC_featured_image_hide":null,"footnotes":""},"categories":[3],"tags":[70,296,164],"yoast_head":"\n