China vs USA – The Economics Of Tribalism

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Economic growth in China has slumped to the lowest level in 30 years – but is still the envy of most developed nations.

Growth slipped to 6.2% in the second quarter of 2019.

But life is changing fast for the world’s second largest economy behind the USA.

A decade ago or less, Christmas used to arrive in the UK from China on a container ship, underlining a reliance on exports to drive growth.

Now, the Chinese population is richer and more open to spending on credit.

The roles have reversed and Chinese factories are more likely to serve local customers than those abroad.

Tariffs starting to bite

Sure, the US trade tariffs are biting, but not as badly as they would have done in the recent past.

But the world has yet to see how growth will fare if foreign companies switch manufacturing away from China to deal with economic and political uncertainty that may drive their profits down.

To take up the slack, the government is investing more in infrastructure to create jobs and open new areas for factories, offices and housing.

The trade war between the USA and China shows how tribalism still influences economics.

Governments are not so worried about the world economy as their slippery grip on power.

In the US, Trump is happy for his voters to see his stance against China as a strength and willingness to put America first.

War for votes and prestige

In China, President Xi Ping takes decisions to look good on TV and in front of the ruling Communist Party.

If their decisions impact others, then that’s just collateral damage or their unforeseen good fortune.

Now, both sides are digging in over Trump’s sanctions against Iran and North Korea.

China backs both regimes, while Trump doesn’t. They are just new fronts in the same war for votes and backgrounds for  Trump and Xi Ping to play their roles in front of the media.

As for China’s low growth, expect to see the rate drop again in future months. The world economy is bombing, with global GDP forecast to average 2.98% in 2019. It’s an average, so there will be winners and losers, but sooner or later China will even out with the rest.

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