July 20, 2019
Last weekend China released its economic data for the second quarter. It didn’t look good. GDP growth slowed to its lowest level in 27 years, shuffling in at 6.2% since the second quarter last year – when the trade war began.
President Trump was quick to present the slowdown as evidence that the war is working and tweeted out: “The United States Tariffs are having a major effect on companies wanting to leave China for non-tariffed countries. Thousands of companies are leaving.”
Perhaps thousands is a stretch. Nikkei Asian Review reported this week that 50 major multinationals – including Apple and Nintendo – have announced or are considering moving a percentage of their manufacturing outside of China i.e. the percentage that makes goods bound for the U.S.
That manufacturing exodus started before the trade war began, as companies sought lower labor costs and direct access to new markets. Most manufacturers will keep a hub in China because the Chinese market is still so valuable. Consultants call that a “China plus one” production model, but the trade war has certainly made getting a “plus one” more prudent.
Naturally, China disputes that its poor Q2 results signal that Trump’s tariffs are working. True enough, China’s economy was slowing down anyway and the government is tackling a slew of issues besides trade – such as unstable debt piles, ineffective infrastructure investments, a retiring workforce and good old, generic normalization.
Bi Jiyao, vice president of the Chinese Academy of Macroeconomic Research, was
dispatched to New York to argue Beijing’s side of the story: that the trade war
is damaging the U.S. more.
said the slowdown was due mostly to Beijing reducing manufacturing overcapacity
and that, meanwhile, U.S. exporters had lost their share of the Chinese market.
“The US has lost market share in
China. Now you rank as the No 3 trading partner with China, overtaken by the
Asean region,” Bi
U.S. exports to China dropped 30% last month. China’s exports to the U.S. dropped too, but only by 8%, springing the U.S. trade deficit on goods to $30 billion. Reducing the trade deficit was one of Trump’s louder rallying cries for the trade war, so watching the trade gap widen must seem like a defeat.
But then who’s winning overall? Well, no one, for now. Negotiators reconnected by phone this week but in-person talks don’t look likely before the end of the month. As Treasury Secretary Steven Mnuchin puts it, “There are just a lot of complicated issues.”
Enjoy the weekend!