China Measurement & Control
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The impact of the trade war on China's economy is limited and controllable
Recently, the United States has provoked Sino-U.S. Trade frictions, which has temporarily manifested itself as a tariff war. There is currently no sign of easing. On the 7th, the United States announced the decision to impose a 25% tariff on China's US $ 16 billion in products, and China responded immediately. Earlier, the US, which was stubborn, threatened to increase the tariffs on US $ 200 billion in products from 10% to 25%, and even imposed tariffs on all US $ 500 billion in products.
In the face of threats and pressure from the United States, China's attitude has not changed: we are not willing to fight, nor are we afraid to fight. We have to fight when necessary, and resolutely defend the core national interests and the interests of the Chinese people. China's confidence comes from its self-confidence in its own economic strength, its adherence to international rules and morals, its full preparation for countering trade bullying, and its rational analysis of the impact of trade frictions. The impact of Sino-US trade friction on China's economy is reflected in three levels: foreign trade, attracting foreign investment and foreign investment, and macroeconomics. Overall, the impact on these three levels is limited and manageable.
Foreign trade level. According to the calculation of the research team of the author, the United States imposed a 25% tariff on 50 billion US dollars of Chinese products, although it will reduce the growth rate of China ’s exports to the United States by 3.39 percentage points, but China ’s total export growth rate will only decline by 0.75 percentage points. If the United States imposes an additional 10% tariff on US $ 200 billion of Chinese products, the growth rate of China ’s exports to the United States will decrease by 9.26 percentage points, and the total export growth rate will decrease by 2.06 percentage points. If the United States imposes a 25% tariff as it threatens, the growth rate of China ’s exports to the United States will decrease by 18.07 percentage points, and the total export growth rate will decrease by 4.02 percentage points. In the most extreme case, if the United States imposes a 25% tariff on all Chinese exports to the United States, the growth rate of China's exports to the United States will decrease by 37 percentage points, and the growth rate of China's total exports will decline by 8.24 percentage points. From the perspective of Chinese imports, China's countermeasures against US $ 50 billion in US imports will reduce its own import growth rate from the United States by 9.84 percentage points, but China ’s total import growth rate is only 0.7 percentage points lower. Furthermore, if China counteracts and imposes a 25% tariff on all US imports, China ’s import growth from the United States will fall by 25.75 percentage points, and total import growth will decline by 1.82 percentage points.
It can be seen that although the Sino-US trade friction will have a greater impact on Sino-US bilateral trade, it will have limited impact on China's overall foreign trade structure. Sino-US bilateral trade is only part of China's total foreign trade. Especially for imports, China's imports from the United States accounted for only 7.08% of its total imports, and the impact of the Sino-US trade war on China's total imports was very small. Of course, the impact of Sino-US trade friction on China's exports is greater than that of imports. After all, China's exports to the United States account for 22.27% of its total exports. However, even under extreme circumstances, the United States imposed a 25% tariff on all Chinese exports, China ’s export growth rate fell by 8.24 percentage points, and the negative growth rate of China ’s exports was only 0.34%. China can fully withstand the negative growth rate of this export. After comparison with historical data, you can have a more intuitive experience of this. In the worst year of the global financial crisis, that is, in 2009, China ’s exports grew at a negative rate of 16.01%; in 2015 and 2016, China ’s exports grew at a rate of 2.94% and 7.73%. The negative impact of the Sino-US trade war on China's exports is not as severe as China's foreign trade decline experienced in previous years, and China is clearly capable of withstanding it.
Attract foreign investment and foreign investment. Among Chinese exports, foreign-invested enterprises accounted for 43.19%. Of the top 100 Chinese companies exporting to the United States, foreign companies account for 70%. Therefore, the Sino-US trade war will affect the operation of foreign-funded enterprises in China, which may affect the confidence of foreign investors in China. But so far, China's use of foreign capital has not been negatively affected. In 2017, China's actual use of foreign investment increased by 3.99%. In the first half of this year, China ’s actual use of foreign investment grew by 4.07%, which was faster than last year ’s growth. In 2017, the number of foreign direct investment projects (enterprises) approved by China increased by 27.8% year-on-year, and the growth rate in the first half of this year reached 96.6%. Of course, from the perspective of foreign investment, Chinese investment in the United States will be significantly negatively affected. When the United States released its 301 investigation report on China, it was stated that in addition to the measures to increase tariffs, it would also strengthen Chinese companies' investment restrictions on the United States.
In fact, this situation is obviously not conducive to the implementation of the Trump administration's plan to promote the repatriation of foreign investment by American companies and the attraction of foreign investment. Naturally, it will also impact its goals of attracting the return of manufacturing and job creation. The reform of the Committee on Foreign Investment (CFIUS) being promoted by the US government may impose more restrictions on Chinese companies' investment in the United States, which will greatly affect the confidence of Chinese companies in US investment. In fact, this trend has been evident since Trump took office in 2017. The US Department of Commerce report shows that Chinese investment in the United States declined significantly in 2017. According to the latest report released by the US Rongding Company, in the first half of this year, Chinese companies completed mergers and acquisitions and greenfield investments of only US $ 1.8 billion, a decline of more than 90% compared with the first half of 2017.
Macroeconomic level. The impact of the Sino-US trade friction on China's foreign trade and investment will naturally spread to the macroeconomic area, affecting macroeconomic indicators such as GDP, employment, price levels, and exchange rates. According to the author ’s research team's estimation, the impact of the current US $ 50 billion tariff levy on Sino-US products on China ’s GDP is only 0.028 percentage points, which is obviously a small impact. Even if China and the U.S. impose tariffs on all their products, even with a rate of 40%, the negative impact on China's GDP is only 0.398 percentage points. With less impact on GDP, the impact on China's employment is naturally not great.
On the other hand, China's additional tariffs on products from the United States such as soybeans will indeed affect its own price level, especially consumer prices. However, various estimates show that the impact of Sino-US trade friction on China's price increases is very limited. Moreover, statistics in the first half of the year showed that consumer prices rose by 2% year-on-year, and there is still room for adjustment in China's price level. Another key indicator of macroeconomics is the exchange rate. At present, the RMB exchange rate has been affected by Sino-US trade frictions. In recent periods, the exchange rate of the RMB against the US dollar has been depreciating, but the RMB does not have a basis for continued depreciation. In the international horizontal comparison, people are still full of confidence in the Chinese economy, and there will be no large-scale capital flight. Moreover, the exchange rate itself is also affected by the monetary policies of the two countries. Two-way fluctuations will remain the future trend of the RMB exchange rate.
In summary, although the Sino-US trade friction does have a certain negative impact on the Chinese economy, the overall impact is within controllable limits, and the Chinese government is fully capable of responding by taking targeted measures.
First, launch measures to stabilize exports and work to expand imports. Prior to the Sino-US trade friction, China had faced severe export situations many times, and the Chinese government had accumulated a lot of experience in stabilizing the export situation. Chinese governments at all levels will closely monitor the export situation of enterprises, pay more attention to market-oriented means, and stabilize exports from the perspective of optimizing the export structure and strengthening exports. For example, guide enterprises to develop more diversified export markets and make better use of new trade formats. As for imports, the Chinese government has repeatedly promised to work to expand imports. Many tariff reduction measures have been launched in the first half of the year, and I believe it will be effective in the second half of the year. In November, China will also host the first China International Import Expo in Shanghai, which will definitely play a significant role in promoting imports.
Second, optimize the business environment and promote diversification of foreign investment. Although foreign investment may be affected by the macroeconomic situation and Sino-US trade friction, foreign investment is more focused on China's large market and business environment. The Chinese government has been working to optimize the business environment. China has made great progress in recent years on technology transfer, administrative licensing, and intellectual property issues that foreign investors care about, and will continue to improve. In terms of foreign investment, Chinese companies do not necessarily have to invest in the US market, and other developed countries are also the direction for Chinese companies to invest abroad. Countries along the “Belt and Road” also welcome investment from China.
China's macroeconomic policies will continue to be forward-looking, flexible and effective. For problems that may arise during the operation of the macro economy, the State Council, the Ministry of Finance, the People's Bank of China and other departments will study and judge in advance and deploy targeted countermeasures. In short, the impact of Sino-US trade friction on China's economy is controllable, and the Chinese government has the ability to take corresponding measures to resolve the negative impact of the Sino-US trade war.
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