While China’s economy has shifted inward over the last few years, relying on its own citizens to fuel growth, if an actual U.S trade war ensues, then its economic growth prospects could be negatively impacted in a significant way, experts have argued.
On April 18, China imposed preliminary antidumping tariffs of 178.6 percent on sorghum, a crop used to make alcohol and biofuels, while President Donald Trump’s threat to impose tariffs on $150 billion worth of goods on everything from solar panels to aircraft to cars remains on the table.
According to the experts, China still exports billions of dollars in goods and services every year, noting that it sold $506 billion in exports to the United States — nearly 20 percent of its exports go to America — while the United States sold just $130 billion to the Chinese.
Over the last few years, China’s debt-to-GDP has ballooned to more than 300 percent from 160 percent a decade ago, causing many people, including Chinese officials, to warn of a financial-sector debt bubble that’s waiting to burst.
Even if China can prevent a crisis from happening, being over leveraged is still bad for growth, Louis Lau, Director of Brandes Investment Partners’ Investment Group pointed out that, historically, countries with high debt loads eventually see their growth rates fall. Couple that with a trade war and China’s GDP could drop faster than many people think.
As it stands now, U.S. tariffs on China won’t have as devastating impact on the Red Giant’s economy that some in government may want it to. The country is much less export dependent than it used to be — “the U.S. is making a miscalculation about that,” said Dollar — and it may be able to get around tariffs by exporting its goods to other countries, said Peter Pauly, an economics professor at Toronto’s Rotman School of Management.
However, if America decides to put tariffs on all it imports from China, about $500 billion worth of goods, then its economy could slow in a more meaningful way. Couple that with its financial issues and it’s not impossible for growth to slow more dramatically.
“If growth slowed to 2 percent, then that would be a crisis,” a senior fellow at the Brookings Institute’s John L. Thornton China Center.
That kind of growth would cause problems within the country, especially if job losses mount or growth remains slow for the long term, but Dollar said a steep decline economic expansion may be just what the country needs.
In any case, a dramatic slowdown in China would cause investors to worry and that’s never a good thing. And even if the country can save itself in the end, China’s problems shouldn’t be taken lightly.