Tariffs Could Wreck China’s Growth Rate — IMF

For years, China’s gross domestic product has risen over 7%. Some experts believe that will moderate to 6.5% because of the size of its economy and the law of large numbers. However, the International Monetary Fund (IMF) warns that trade tensions, particularly with the United States, could knock the number well under 6%.

In its new paper, “Asia at the Forefront: Growth Challenges for the Next Decade and Beyond,” IMF experts continue to believe that Asia will have a profound effect on the world’s overall growth rate because of its unusual strength.

The paper’s authors point out:

Overall per capita income in Asia still substantially lags that in the United States and Europe, but in growth terms, the region is very much at the forefront of the global economy, accounting for more than 60 percent of world growth and projected to grow at 5.6 percent in 2018 and 5.4 percent in 2019. There are signs, however, that the synchronized global recovery of the past few years is starting to fade, and risks to the Asian and global forecast are now tilted to the downside, reflecting increased financial market volatility, rising trade tensions, and slowing momentum in China

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The trade threat to China is new because of a recent growing battle with the Trump administration that shows no sign of a resolution. Thus,

Model simulation exercises in the background paper on trade suggest that recent tariff actions and proposals could weigh heavily on growth. The impact on China’s output could be up to 1.6 percent over the first two years, and for the region as a whole, GDP could drop by up to 0.9 percent, although short-term policy stimulus is expected to offset much of the impact

While they are models, the IMF’s predictions are carefully followed. It also stands to reason that a huge dislocation with China’s largest trading partner — the United States  — would badly undermine the nation’s huge export machine.

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