How China’s consumers can help ease trade tensions with US

At a time when the US economic outlook may be faltering, China has an opportunity to take up the slack and help lead the way in the global recovery

Lifting global growth might mean bigger deficits and a smaller trade surplus for China, but major benefits would follow if it eases tensions with the US

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Tourists at a Sanya City duty-free shopping centre in southern Hainan province. China has ample scope to increase consumer spending and domestic growth, with its high personal savings rate. Photo: Xinhua

Published: 10:00pm, 12 Oct 2020Updated: 10:49pm, 12 Oct 2020

With so much hanging in the balance between the pandemic, the US elections and trade tensions, the global economy needs as much help as it can get to return to the road to recovery. There are only two countries capable of ramping up global growth at the moment – the United States and China – and whether they work alone or do it together could make a lot of difference.

At a time when the US outlook may be faltering, China has an opportunity to take up the slack and help lead the way. It means stepping up much more domestic stimulus and quickly resolving trade differences with the US, but the rewards could be incalculable. If global growth can be stabilised above its 3.6 per cent long-run average in the next few years, the world would be a winner.

The US is hailed as the backbone of the world economy, the swing producer of global growth generally. The US recovery is showing signs of slippage, though, and confusion surrounding a new stimulus plan is not helping economic confidence.

As a result, US forecasts are becoming less optimistic about prospects for growth next year, with the National Association of Business Economists recently revising 2021 growth expectations down to 3.6 per cent from earlier forecasts for 4.8 per cent. It is no surprise the outlook seems blurred, with the US Federal Reserve now sitting on its hands and calling on the government to do more on fiscal stimulus instead. US policy seems to be in a stand-off.

China is positioned to do more. It is the only major economy to avoid recession amid the pandemic, with growth bouncing back to 3.2 per cent in the second quarter after suffering a 6.8 per cent setback in the first three months of the year. The median range of growth forecasts for the mainland in 2021 generally remains upbeat.

China’s economy is set to continue expanding, but only as long as recovery holds up for the rest of the world and global trade growth picks up to a much faster pace. China needs a stronger international economy to drive more export-led recovery, but the world needs more of China’s domestic stimulus to spill abroad to help speed up the process.