The trend in the last few quarters gives a clear indication that the Chinese growth story is over. For almost 4 decades, the Chinese economy registered a near double-digit growth but now it is not able to sustain the same. The East Asian economic powerhouse posted almost three-decade low growth in June quarter. The impact of Trump’s trade war is clearly visible as many companies are shifting their manufacturing units from China.
The 6.2 percent GDP growth posted in June quarter is lowest since 1992. The country recorded 6.4 percent growth in the first quarter of this year and 6.6 percent growth for year 2018. The economic growth of China is now supported by domestic demand instead of exports. “China’s economic growth is more and more reliant on domestic demand, especially on consumption,” said Mao Shengyong, NBS spokesman.
US president lauded his trade war policies as the growth of China, which manipulates its currency heavily, fell at 27 year low. “United States tariffs are having a major effect on companies wanting to leave China for non-tariffed countries,” tweeted Trump. “Thousands of companies are leaving. This is why China wants to make a deal with the US and wishes it had not broken the original deal in the first place,” said Mr Trump. “In the meantime we are receiving billions of dollars in tariffs from China and possibly much more to come,” he added.
Previously, Donald Trump has announced that US will increase the tariffs on 200 billion dollars of Chinese goods to 25 percent from the existing 10 percent. However, Trump is not pleased by the progress on trade talks and this was the reason behind increase in tariffs.
The US has a trade deficit of almost 700 billion dollars of which China accounts for almost half. Imposing import tariffs is rebalancing the trade relations of US with countries like China, Japan, Germany, Mexico and others. Trump is vehemently opposed to the current trade relations between America and China because they are heavily skewed in favor of China.
In 2016, China was the largest goods trading partner with 578.2 billion dollars in total (two way) goods trade during 2016. Goods exports totaled 115.6 billion dollars; goods imports totaled 462.6 billion dollars. The U.S. goods trade deficit with China was 347.0 billion dollars in 2016. Trump was opposed to the fact that the Asian economy deliberately keeps the value of its currency low, therefore, making its exports more competitive in the international market. The American manufacturers were losing to the Chinese because the labor was cheap there, and goods produced in America have become uncompetitive.
China has very little room left to increase the tariffs as the total American exports to the dragon is only 130 billion dollars and it has imposed tariff on 110 billion dollars. When US imposed tariffs of 25 percent on imports worth 50 billion dollars, China reciprocated with same tariffs on the same amount of trade. Later, when an enraged Trump imposed tariff of 10 percent on 200 billion dollars then China imposed tariff of 5 to 10 percent on import worth 60 billion dollars. But now China is not able to impose further tariff as very little scope for the same is left while US could impose tariff on imports of another 267 billion dollars, indicating that the trade war could last further having serious effects on Chinese economy.
The Chinese economy is facing a double whammy as domestic consumption is slowing down and exports are poised to hit due to trade war. The control freak Communist regime needs to make some outstanding efforts to redeem the economy. Stimulus announced by the government did not yield any positive impact for the economy, therefore, Chinese Communist Party run government needs to look for alternatives to avoid further reduction in growth.