China has long had the luxury of negotiating from a position of strength and security, but things are now changing. There are massive layoffs, the housing market is slow, foreign investment is plunging, car sales are down, and the Chinese stock market is near its lowest in four years.
But what is hindering the Chinese economy? Failure to make a trade deal with the United States plays a huge role.
Both the U.S. and China have made headlines for their confidence in winning this trade war, but there’s no doubt that the trade war has come at a bad time for China. They are currently trying to fix their debt situation, but tariffs will affect investment, business sentiment and growth.
As of September 2018, the official data shows a 6.5% growth in the Chinese economy in the past year. However, there are many economists who distrust these statistics.
Censoring the News
What might be the most troubling part of this is that Chinese citizens aren’t aware of exactly what’s going on. The country is trying to keep negative economic updates out of the news, leaving the average person in the dark.
Despite this, there is growing doubt among many workers who are feeling the effects first-hand. As demand is slowing, many businesses are forced to cut hours. Even engineers, construction workers and factory employees have been sent on long vacations with no pay. Guangzhou and Dongguan, the manufacturing capitals of southern China, are hit hardest.
What everyone wants to know is, “What does the future hold?” Coastal areas that depend on exporting goods to the U.S. are especially concerned. United States importers may not need as many goods in coming months because supply chains to America have been stockpiled with excess inventory.
The war on trade has intensified with new tariffs and accusations on both the Chinese and American sides, but the odds are in favor of an eventual compromise. Domestic firms in the U.S. relying on Chinese imports are pressuring the government to find a solution, and the trade war is clearly worsening problems for the Chinese economy.
With that being said, the trade war is hurting China more than it is hurting the U.S. The United States only relies on China to buy 8% of our exports, but nearly 25% of Chinese exports are bought by the U.S.
Although China’s economic woes go way beyond tariffs, it is in their best interest to work toward a solution soon to avoid further strain.