Macroscope | US is winning the trade war, and Chinese growth falling to 5 per cent will be the proof

David Brown says that much as China would like to maintain its growth rate at the 6-8 per cent annual level, it will have to accept that the Trump administration has the upper hand in the trade stand-off, and a slowdown is inevitable

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A worker looks on as a crane lifts steel pipes for export at a port in Lianyungang, China on July 15. China’s steel and aluminium exports have been among the first targets for tariffs by the Trump administration. Photo: Reuters

Published: 5:02pm, 30 Jul 2018Updated: 10:35pm, 30 Jul 2018

China has its work cut out to keep economic growth motoring above 5 per cent over the next few years. It is no good looking askance to the United States, where growth is steaming along, and hoping continued global recovery acts as a boiler-room for faster economic expansion. The status quo is changing and the heyday of easy global pickings is over. The threat of an all-out trade war with the US, slower global growth and an imminent end to world super-stimulus raises the odds that China’s growth rate is already grinding to a much slower pace than Beijing would like.

China has always been able to rely upon strong external demand for its exports and a dynamic pace of internal growth as rapid domestic investment and changing consumer needs have seen a new, go-ahead economy take shape. There is no reason for that to change, but Beijing should accept it will happen at a much slower pace in future.

Annual gross domestic product growth in the order of 6-8 per cent cannot go on forever and there is a very real chance growth could slow very sharply to 5 per cent or even lower in the next few years, unless Beijing takes strong steps to mitigate the risk.

The greatest danger in the short term is the spectre of the US-China trade dispute spiralling out of control, with the potential to knock growth expectations on both sides. US President Donald Trump is unlikely to back down, especially since he is in high spirits over the US economy expanding at its fastest pace in nearly four years, with second-quarter GDP growth increasing to 4.1 per cent. No matter that the spurt was due to one-off factors, with soybean farmers rushing to beat retaliatory trade tariffs and US consumers blowing their recent tax-cut bonanzas.

Watch: US soybean farmers hope for an early end to trade war

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