Question

For the couple of decades, China has been grown around 10%/year, but recently the growth has fallen to 6%. US, for instance, has been growing at around 2%/year. Why slowdown in china would be a concern for US? If prices in China fall because of slowdown, would it hurt or help US? Explain.

Answer 1

China has the world’s fastest-growing major economy with growth rates averaging 10% over the past 30 years, according to the World Bank. As of the end of 2017, the country’s economy was the second largest in the world by nominal gross domestic product (GDP) and the world's largest by purchasing power parity (PPP) next to the United States, driven largely by its manufacturing sector that exports goods that are widely consumed around the world.

But in the past few years China's economy is going through a slowdown.The nation's economy grew 6.5% year-over-year in the third quarter of 2018, which is the lowest growth rate since 2009 and reflects the growing trade war with the United States.The reasons for the rapid slowdown in China's economy are multiple. A rapidly aging population, a falling birth rate, a tightening Federal Reserve, and a slowing global economy have combined to put the brakes on China’s economy.

Us has to closely watch the situation of the Chinese economy as it could affect US companies and stock market. Given the ongoing trade war between US and China, if prices in China fall because of slowdown then the demand of CHinese goods will fall in its domestic market and it would Turn its eye to sell its goods to the global market especially US. US could potentially take advantage of the situation by putting more tarrifs on Chinese goods which would further deteriorate the health of Chinese economy and consequently the world economy.

Moreover the Chinese slowdown has also hurted many US companies as their sell in China has gone down.