China Shrugs Off Trade War Obstacles

Chinese officials are shrugging off warnings that the trade spat with the United States could slash the country’s economic growth, with state-run media saying Beijing can “outlast” the tariffs war.

Donald Trump this week announced another $200 billion worth of goods on which to foist levies for his latest volley in the stand-off between the world’s top two economies, and threatened there could be more in the pipeline if China doesn’t play ball, AFP reported.

But while Chinese Premier Li Keqiang acknowledged on Wednesday that the country is facing “greater difficulties” in maintaining steady growth in the face of the US onslaught, he quickly voiced confidence in its ability to “overcome obstacles”.

The new measures add to the $50 billion worth of goods already targeted.

That amounts to about half of China’s exports to the US, which generate roughly 1.3% of its gross domestic product, said Mark Williams, chief China economist at Capital Economics.

According to the rating agency Moody’s, this new escalation could cut as much as 0.5 percentage points from Chinese economic growth next year.

The row comes at a tough time for Beijing, which has seen the world’s number two economy run out of steam of late, hit by the government’s efforts to tackle a mountain of debt, which led to a tightening of credit and a sharp decline in infrastructure investment.

The International Monetary Fund predicted in April that growth would slow to 6.4% in 2019, against 6.9% in 2017.

But if Trump executes his threat to tax all imports from China, Beijing could see that figure fall to 5.8% next year, warned Louis Kuijs, chief Asia economist at Oxford Economics. That would be the slowest rate since 1990.

While there are hopes the two sides will be able to resolve their difference, Kuijs warned the prospects for a deal remain low in the short term, with the White House appearing certain it can win the war.

However, Beijing has so far weathered the tariffs storm partly thanks to a sharp depreciation of the yuan, which has lost almost a tenth of its value against the dollar since April, offsetting the impact of tariffs, Capital Economics’ Williams said in a note.

Secondly, he added that US companies will stay dependent on Chinese suppliers, because “for many of the affected goods, there are few alternative suppliers”.