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Coronavirus pandemic
OpinionComment
Neal Kimberley
Neal Kimberley

Macroscope | Coronavirus recovery: pickup in US economy, consumer spending could be to China’s benefit

  • The unleashing of pent-up US consumer demand should result in even greater US purchases of goods sourced from Chinese factories
  • This demand-driven resurgence should bolster China’s economy and underpin international demand for the yuan

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Shoppers look at clothes in a Vineyard Vines store at the Fashion Outlets of Chicago shopping centre in Chicago. Photo: Bloomberg
Neal Kimberley
China led the world in economic recovery from the Covid-19 pandemic. The renminbi has strengthened versus major currencies. The United States looks as if it, too, is now getting a grip on the pandemic and the US economy should also bounce back smartly. That should benefit the US dollar, but the renminbi will continue to outperform.
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Containing Covid-19 via a successful vaccine roll-out is key to both reopening the US economy and unleashing pent-up demand from US consumers. With consumer spending accounting for nearly 70 per cent of US gross domestic product, this really matters. Ultra-easy Federal Reserve monetary policy and US President Joe Biden’s US$1.9 trillion fiscal stimulus plan, now approved by Congress, will only turbocharge the economic resurgence.

China stands to benefit. US policymakers might not like it, but for decades US manufacturers have been offshoring jobs, often to China. The unleashing of pent-up US consumer demand should result in even greater US purchases of goods sourced from Chinese factories. That will bolster China’s economy and reinforce the attractiveness of the yuan to investors.

A look back at 2020 is revealing. With the pandemic raging, the US deficit in goods and services last year totalled US$678.7 billion, its highest level since 2008. The US trade deficit in goods alone totalled US$915.8 billion, of which US$310.8 billion represented the US deficit in goods with China.

Even though Trump administration’s tariffs on goods imported from China were in full swing throughout 2020 and US consumption was suppressed as a consequence of the pandemic, the US trade deficit in goods with China still accounted for 34 per cent of the total.

As the US economy rebounds from the coronavirus pandemic, there will be every possibility that US consumer demand for products that are made in China will only be enhanced. That should underpin demand for the yuan on the foreign exchanges.
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