China’s Economy turns Stormy 9/26/19

The United States has increased tariffs on certain Chinese imports and China retaliated by raising tariffs on some US imports. Global economic growth remains subdued in 2019 and is expected to slow down to 2.6% for 2019. Some of this subdued growth is due to the US – China trade dispute.

China’s economy seems to be particularly hard hit. A slowdown in the Chinese economy started last year and the tariffs from the trade dispute with the US have accelerated the slowdown to less than the Chinese Government’s 6% target. Prices for imported goods to China have risen considerably with the price for pork up almost 50% in the last year and pork is a staple of the Chinese diet. Many in China are starting to express concern with the rising cost of living. But one of the most concerning items for the Chinese economy is the ‘decoupling’ from the US economy. A side effect of the trade dispute with the US is that China is being replaced in the business supply chain with countries like Vietnam and Thailand. That is already happening and likely won’t change if a trade deal between the US and China is finalized. China is getting hit hard economically.

In the US economic growth has slowed but it is still close to its long-term average of about 2%. The US has benefited from low inflation and low unemployment. The equity markets have taken this trade dispute wearily at times with some volatility returning at times this year, but they remain close to record highs. It seems the trade dispute has been built into the equity markets. What would happen if a trade deal was agreed to later this year?