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China economy

How US tariffs are expected to weigh on China’s growth rate

Survey of economists predicts sharper slowdown if trade war continues

PUBLISHED : Wednesday, 22 August, 2018, 4:11pm
UPDATED : Wednesday, 22 August, 2018, 10:34pm

The tariffs that the US and China are threatening each other with will cause China’s economy to slow more sharply next year if they are enacted, underscoring the high stakes nature of negotiations set to resume this week.

The ongoing trade conflict will reduce China’s economic growth by 0.2 percentage points this year and 0.3 percentage points in 2019, according to the median estimate of 16 analysts in a Bloomberg survey this month.

The estimates depend on the US following through on its threat to impose additional tariffs on US$200 billion of Chinese goods and China retaliating with levies on US$60 billion of imports from America.

China’s US$12 trillion-plus economy will expand by 6.3 per cent next year, compared with the 6.6 per cent expected this year, according to a separate poll of economists, not all of whom have taken the proposed tariffs into account.

While that is still much faster than other major economies, slower growth will imperil the nation’s aim of doubling the size of the economy in the 10 years to 2020.

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“Trade war damage is not only through exports, it would also disrupt global supply chains,” said Iris Pang, Greater China economist at ING Bank NV in Hong Kong, adding that Chinese factories would be reluctant to invest and expand further amid the uncertainties.

“If the tariffs on US$200 billion of goods kick in, the government will step up the fiscal stimulus and the monetary easing, providing some cushion.”

The government has already announced a range of measures to support growth, including more infrastructure projects and tax cuts.

While officials are heading to the US this week for the first major talks in more than two months, the next round of tariffs could begin as soon as September 6 and President Donald Trump has threatened to impose tariffs on almost all goods imported from China.

At home, the central bank has cut reserve ratios for banks three times this year in an effort to inject liquidity into targeted sectors, and economists expect it to do so again in the second half. The government has also increased spending and urged local authorities to sell bonds faster to boost infrastructure construction.

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Economists expect those measures to have an effect. Infrastructure investment growth will rebound to 7.4 per cent for the full year, up from a record-low 5.7 per cent in the first seven months, according to the survey.

However, the government’s controls on borrowing and property prices will continue to weigh on other types of spending.

Fixed-asset investment for property development and manufacturing will rise by 8.5 per cent and 7 per cent from a year earlier respectively, both slower than the paces in January to July, according to the median estimate of economists.