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China/US Trade War Slows China’s Economy to 28 Year Low

graphic of United states and China with hands pointing fingers at each other
China's economy slowed to a 28-year low, at least in part to the US-China trade war during 2018. (Image via PxHere)

China’s economic growth slowed to 6.4 percent in the fourth quarter of 2018 compared to the same period in the previous year, the slowest pace in the past 28 years as the impact of the trade battle with the US endures.

China, the world’s second-largest economy, grew 6.6 percent in 2018 marking the country’s slowest economic growth in almost three decades. The slowdown is attributed to both decreased domestic demand and the trade war with the U.S.

China’s statistics bureau data showed that the economy has suffered the most stagnant expansion since 1990. In the third quarter of 2018, the mainland’s economy dropped slightly from 1.7 percent to 1.6 percent on quarter-on-quarter.

China’s recorded fixed asset investment growth expanded at 5.9 percent throughout 2018, below analysts’ estimate of 6 percent and the slowest since 1996.

China’s economy has lost its growth momentum amid efforts to control its high debt level due to weakening domestic demand and the increase in US-imposed tariffs. Such conditions have triggered concerns about the global economy given China contributed almost one-third to global growth in the past decade.

The US/Chinese Trade War’s Effect

A trade war between the US and China saw Washington applying numerous import tariffs on Chinese goods with Beijing responding in kind. The tariff battle continued until November 2018, but then both countries agreed to a 90-day truce to last from December until March 2019.

The trade war broke out after the US accused China of conducting unfair trade practices and forcing the world’s tech firms to open their businesses in China to transfer their technology to get business permits.

Signs of sluggish growth were evident in November 2018 based on reports on retail and industrial output released by China’s statistical agency. Industrial profit expanded 5.4 percent in November 2018, a bit lower than the Reuters’ analysts’ estimate of 5.9 percent. Sales in the retail sector went up only 8.1 percent, the weakest rate since 2003, down from 8.6 percent in the previous month.

China’s car sales also slumped 13.9 percent in November 2018, the worst fall since 2012, the country’s automotive industry association reported.

China’s Slow Growth Affects Several Asian Countries

Global weakening growth is expected to hurt Japan. According to a Reuters poll, Japan will face a risk of recession in the upcoming fiscal year (April 2019-April 2020).

Japan has felt an indirect impact of the trade dispute. The country’s exports fell in November 2018 due to declining shipments to the US and China, as the latest data revealed. In December 2018 Japan’s exports shrank 3.8 percent from a year earlier.

Indonesia should anticipate a negative impact of China’s idle growth as Josua Pardede, an economist at PermataBank, explained. China is Indonesia’s primary trading partner, and Indonesia’s exports to China account for 15 percent of the archipelago’s total export, mostly coal. But Indonesia’s coal shipments to China have declined as the latter demands eco-friendly types of coal, Pardede added.

Several emerging markets will likely suffer from China’s economic meltdown throughout 2018 as analysts predicted the slowing growth will continue this year. The manufacturing industry in Thailand, Taiwan, Malaysia and Myanmar also weakened in the fourth quarter of 2018.

Smartphone maker Apple has slashed its revenue and sales forecasts for 2019  due to the trade war. The tech giant lowered the sales target for 2018 to $84 billion from between $89 billion and $93 billion.

China is Apple’s third largest market, with $52 billion in sales in the company’s most recent fiscal year. After announcing the forecast revision, Apple’s shares plummeted drastically 10 percent, with losses of more than $55 billion.

Washington Cancels Trade Meeting with China

The White House canceled a meeting with China, which was supposed to take place Jan. 21 to Jan. 25 to discuss ongoing negotiations related to the trade dispute. As CNBC reported Wednesday, the cancellation was due to disagreements on regulations on intellectual property.

The White House economic advisor Larry Kudlow denied the meeting was canceled, saying there had been no meeting so far. However, a CNBC source said negotiations might be possible on the phone. Yet, the postponement of a one-on-one meeting may signal that reaching an agreement to solve the trade issue will still be a long way off.

It is reported that China offered to boost its imports from the US for six years with a combined value of imported products worth $1 trillion when both sides negotiated in early January.

“I would kind of characterize negotiations as generally moving in the right direction. Last week, China offered a fig leaf in lowering tariff rates and agreed to import a trillion dollars of US goods by 2024,” Joseph Lupton, global economist at J.P. Morgan, said.

China’s Case for Optimism Despite Tariffs

Despite the pressure, Chinese officials still voiced optimism that the economy will grow “normally” since China has capacity and confidence. “China has ample room for macro policy support,” Ning Jizhe, head of the National Bureau of Statistics, said.

China’s unemployment rate stood at 4.9 percent at the end of December 2018, up from 4.8 percent in the previous month. Throughout 2018 the government recorded that there were 13.61 million new job opportunities, exceeding the administration’s annual forecast.

 

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Yasmeen Rasidi

Yasmeen is a writer and political science graduate of the National University, Jakarta. She covers a variety of topics for Citizen Truth including the Asia and Pacific region, international conflicts and press freedom issues. Yasmeen had worked for Xinhua Indonesia and GeoStrategist previously. She writes from Jakarta, Indonesia.

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