US-China trade dynamics: China’s economy has dropped from 8% to 3%, worrying the world. However, since the U.S. and China trade little, this will unlikely immediately impact the economy.
The world’s second-largest economy, China, is struggling with a decline in GDP, failing real estate enterprises, and lower customer trust due to long-term COVID-19 lockdowns. How does China’s economic decline affect the world’s largest U.S. economy? The most important question.
U.S. consequences aren’t significant yet. Wells Fargo found that even if China suffers a “hard landing” and its output declines 12.5% over three years, the U.S. GDP may slow by 0.1% in 2024 and 0.2% in 2025 after inflation. Capital Economics Group Chief Economist Neil Shearing said China’s economy will only affect the global economy if things worsen.
China’s economic troubles are partly due to the U.S. In 2022, Americans spent $536.8 billion less on Chinese imports and more on vacations and festivities after the outbreak. The tariffs imposed by former President Trump and generally maintained by the Biden administration reduced demand for Chinese goods.
China’s attempt to develop its economy through internal consumption has failed, and current events may compel it to rely on exports. Since the yuan is weak versus the dollar, an export-led rebound might lower U.S. inflation by bringing cheaper goods. However, this could slow American industry recovery and raise international tensions.
Also Read: US-China Economic War Intensifies: President Biden Targets Investments in Key Chinese Sectors
U.S. exports to China have hurt. Even though China only bought 7.5% of U.S. exports in 2022, many, especially farms, wanted to develop this market. China is eating less, which might lower global food costs and damage farms.
Trade trends are general, but U.S. corporations are affected differently. Companies like Tesla and Apple, with significant Chinese market investments, may suffer. Citigroup, a U.S. bank with global operations, has halted development due to the Chinese market.
While U.S. firms struggle, the contrasts between the U.S. and Chinese financial systems keep most U.S. corporations and investors secure. According to Dr. Setser of the Council on Foreign Relations, China is unlikely to disrupt the bond market beyond what the Federal Reserve can fix.
China’s economic decline could alter geopolitics. The U.S. has long fretted about trade arrangements that single out China. China’s power may decline, shifting the balance to international lenders like the World Bank. China’s military aims, including attacking Taiwan, may change if its economy worsens. China’s economic prospects are bleak, but the future remains unpredictable. Dr. Tang of Hong Kong’s HKU Business School is optimistic that China can fix its issues.
The downturn in China’s economy alarms people worldwide, but it doesn’t appear to affect the U.S. immediately. As integrated global economies navigate these uncharted seas, the situation is changing and must be monitored.
Our Reader’s Queries
What is the trade tension between US and China?
Over the past two years, the US has slapped tariffs on over 60% of its imports from China, with some tariffs reaching as high as 25%. As a result, imports from China in these tariffed categories have dropped by 12.5% between 2017 and 2022. However, imports from other regions have seen a significant increase in the same product categories.
What is the current trade relationship between the US and China?
In 2022, China’s exports amounted to $195.5 billion, while imports reached $562.9 billion. Unfortunately, the U.S. goods and services trade deficit with China was $367.4 billion. However, there is some good news as U.S. goods exports to China increased by 1.7 percent ($2.6 billion) from 2021, totaling $154.0 billion. This is a significant increase of 39 percent from 2012.
Is trade between the US and China booming?
China views the United States as its primary trading partner and the biggest buyer of Chinese exports. This partnership is only getting stronger, as the total worth of U.S.-China trade hit a record high in 2022.
Does the US have a trade imbalance with China?
The trade deficit between America and China is a staggering $350 billion annually, with China holding over $800 billion in U.S. debt. These numbers have remained consistent for years. However, when viewed from a global and Asian perspective, these imbalances are not as surprising as they may seem.