Question

provide an original research question with an international business aspect to it. Also write one original testable, directional hypothesis of association. Then, provide a brief literature review with citation in each paragraph included.

Answer 1

In the last 18 months, the deterioration of the U.S.-China trade war has cast a pall on optimism and investment in the advanced economies. In comparison, economic growth in China remained relatively stable at around 7%, and inflation was near to the 3% goal limit of the People's Bank of China. Such buoyancy was unexpected, because China is supposed to be the biggest loser from the trade wars by many observers (and possibly by the government of Donald Trump).

So far, how has China survived the market shock? The first question is to measure the scale of the Chinese economy's exogenous shock from the wars of exchange. The economist Andrew Tilton of Goldman Sachs, who conducted outstanding empirical research on the trade war, reports that the initial rounds of tariffs that took effect until 1 August 2019 lowered Chinese gross domestic product by 0.4 percent by direct trade impacts alone. This is broadly consistent with the worsening of the contribution of net trade to GDP spending from 2017-19, suggesting that the estimate is in the right ballpark. As a result of the huge rise in trade policy uncertainty, there have also been potentially far greater negative effects on business investment. With any confidence, these are very difficult to estimate. Nonetheless, US Federal Reserve Board staff economists have recently released a study that predicts trade policy instability will have decreased real GDP in emerging economies, including China, by about 0.9% by the end of 2019. This is very similar to the global results published by IMF economists last week, as well as near to the documented fall in investment spending by foreigners in China and by Chinese exporters since the beginning of the trade war.

If correct, this indicates that the effect of market volatility on Chinese GDP was about three times greater than the influence of direct trade, giving GDP a full contractionary shock equivalent to 1.3%. Chinese economic support and exchange rate decline have reversed this impact. Since the trade war ended, some aspects of domestic economic policy have been relaxed, although this has been achieved cautiously, with continuing efforts to reduce debt growth in the economy, especially in the shadow banking sector. Fiscal stimulus has been emphasized, which (according to the IMF) in 2019 alone will increase the overall budget deficit by 1.5% of GDP. Furthermore, monetary policy was eased, but only "cautiously." A key policy indicator, the 12-month medium-term lending facility interest rate, has remained unchanged, while the reserve requirement ratio has been cut by 4 percentage points. Bank discipline has been loosened and JPMorgan is expecting a 12 percent increase in total bank in 2019. JPMorgan has decided to raise by 12% in 2019. Housing policy was an exception, with no relaxing of restrictions that could have prevented development so far.

The Goldman Sachs index of China's overall macro-politics stance contains all these elements, and on this measure the easing appears to be large enough to offset the tariff and uncertainty shocks during the trade wars almost exactly. However, the 6% fall in the exchange rate since the second quarter of 2018 may compensate for another GDP gain of about 0.7% over a three-year term, estimated from the current IMF report on currency impact on global economic activity.

For conclusion, economic developments for China have easily reversed the whole contractionary impact from the trade wars up until August 2019.