The tariffs that the U.S. and China are threatening each other with will cause China’s economy to slow more sharply next year if they’re 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 point this year and 0.3 percentage point in 2019, according to the median estimate of 16 analysts in a Bloomberg survey this month. That’s if the U.S. follows through on its threat to impose additional tariffs on $200 billion of Chinese goods and China retaliates with levies on $60 billion of imports from America.
China’s more-than-$12-trillion economy will expand by 6.3 percent next year, a bit slower than the 6.6 percent expected this year, according to a separate poll of economists, not all of which have taken the proposed tariffs into account. While that’s still much faster than other major economies, slower growth will imperil the nation’s aim of doubling the size of the economy in the ten years to 2020.
“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 $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 U.S. this week for the first major talks in more than two months, the next round of tariffs could begin as soon as Sept. 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.
Economists expect those measures to have an effect. Infrastructure investment growth will rebound to 7.4 percent for the full year, up from a record-low 5.7 percent 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 8.5 percent and 7 percent from a year earlier respectively, both slower than the paces in January to July, according to the median estimate of economists. (www.bloomberg.com)
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