Influence of tariff friction on China's macro economy limited

THE ongoing trade frictions with the United States will have limited negative influence on the Chinese macro economy, experts said.

“China’s economy is running stable,” said Wang Changlin, vice president of the Academy of Macroeconomic Research of the National Development and Reform Commission. In his view, the trade friction with the United States will exert some influence on the Chinese economy, but will be limited in general.

The United States on April 3 announced tariffs on a proposed list of Chinese goods worth US$50 billion. The list was authorized by the US Trade Representative’s office, which in August 2017 initiated an unfounded investigation under the Section 301 of the US Trade Act of 1974 to probe China’s intellectual property and technology transfer practices.

According to an initial estimate, declines of exports up to US$50 billion would drag China’s GDP growth rate down by less than 0.1 percentage point, Wang said.

China is capable of achieving its annual growth target of around 6.5 percent this year and maintaining the surveyed urban unemployment rate within 5.5 percent while creating more than 11 million new urban jobs.

Little effect on inflation

“The industries targeted by the proposed US tariff increases are not labor intensive, which means that export declines in these sectors will not cause large-scale layoffs,” said Wang. He also believes China’s plan to impose additional tariffs on US goods, including soybeans and pork, will have a minor influence on inflation.

China imported 32.85 million metric tons of soybeans from the United States, accounting for more than one-third of China’s total soybean imports. Tariff increases will make US soybeans less competitive, causing them to be replaced by products from Brazil and Argentina, according to Chen Yang, a researcher with the Chinese Academy of Agricultural Sciences.

If there is a price hike of 25 percent on soybeans, the consumer price index will be raised by about 0.25 percentage point. The CPI control target of around 3 percent this year will still be reached, analysts said. For the United States, however, it will be hard to find an alternative buyer like China for its soybeans.

Also, the burden of the proposed US tariff increases on Chinese products will be shouldered by the whole industrial chain, putting pressure on exporters, raw material providers and retailers, as well as US buyers, rather than by Chinese enterprises only, according to Wang. China’s financial market will also remain stable, given that the country’s economic growth is stable, business efficiency is improving and consumer prices are running in a low range, he said.

The trade imbalance between the two countries is structural, with China exporting more commodities to the United States while importing more services, according to Minister of Commerce Zhong Shan.