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Reopening the U.S. May Hinder China’s Economic Recovery

China is already having an impressive economic recovery, despite being the emergence point of the coronavirus, due to increased domestic demand and exports, said Michael spencer from Deutsche bank.

Spencer, the Dusted Bank’s Chief Economist and Head Of Research for Asia Pacific said that China’s economy will likely grow by 5% to 6%. This will occur quarter on quarter from April to June, despite the contraction between January and March.

However, the U.S. presents the biggest challenge to both China’s economy as well as the global economy, according to Spence. The U.S. decision to reopen is premature and could trigger a second wave of Coronavirus infections, necessitating another lockdown.

 

Domestic Demand and Exports Are Boosting China’s Economic Recovery

Worldwide Lockdown measures to combat the coronavirus pandemic have halted most of the world’s economic activity. Those drove the global economy into a recession and dampening any expectations of economic growth in 2020.  However, “the domestic demand part of the Chinese economy has recovered well,” said Spencer.

Spencer added that a broad range of indicators in China are returning to normal, especially auto and property sales.  China’s exports have also performed better than expected. But the economic weakness in its major export destinations could make the situation worse in the coming months.

In May, China’s trade surplus stood at 62.93 billion in contrast to a forecast of 3.9 billion in April, which also recorded a $45.34 billion surplus.  In the U.S. alone, China’s trade surplus in May was 27.89 billion. Even with rising tension between the two world’s largest economies, over Hong Kong’s special trade status and the Phase One deal.

“Even though the export performance exceeded expectations, the difficulties faced by traditional trade enterprises should not be ignored.” Said the chief economist, at Zhonghai Shengrong Capital Management, Zhang Yi.

China’s economy shrank by 6.8% in the first quarter of 2020 from 2019. The uncertain outlook so far has made the Chinese government decline to set an annual growth target for the year. Stating that future exports will likely see negative growth. Zhong added that “it is not necessary to be too pessimistic” as the growth “should be within-10%”.

Spencer mentioned the U.S. as the biggest risk to China and the global economy because the country is reopening “too soon.”

This also has implications for its own economy.  A new wave of infections and further restrictions could leave the U.S. economy struggling. This is even after recording a jump surprise increase in employment gains in May.

 

The U.S. Might Take Years to Recover From the Enormous Economic Damage

The U.S. economy added 2.5 million jobs in May, reducing the unemployment rate from 14.7$ to 13.3% due to limited reopening, which led to rehiring in restaurants, bars, construction sites, and doctors’ offices.

“These improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the Coronavirus pandemic and efforts to contain it,’” according to an official statement by William w. Beach, Commissioner of the Bureau of Labor Statistics.

While the government responds to the coronavirus crisis, with a multi-trillion rescue package with unemployment benefits during this economic recession. Experts warn that the country will take a long time to recover.

According to Steve Hanke, a senior fellow at American Libertarian Think Tank Cato Institute, the U.S. economy might take years to recover.

And to repair it, it’s just not going to happen immediately. I don’t think we will reach the level of pre-crisis GDP until 202 and probably way beyond that.” He said. “So, we’ve got a tough road to follow here.”

In March 2020, the Bank of America officially declared that the U.S. economy had fallen into a recession in a deep plunge. Michelle Meyer, Bank of America’s economist, said, “Jobs will be lost. Wealth will be destroyed and confidence depressed.”

She also added that the GDP would collapse by 12% in the second quarter. Moreover, it will collapse by 0.8% for the full year.

 

US-China Volatile Trade Relations

Tensions are high between the U.S. and China due to the new security law that China plans to impose on Hong Kong, with the U.S. threatening to revoke the special trade status it has with Hong Kong.

Additionally, China’s forecasted inability to honor the terms of the Phase One trade deal signed in January, due to the Coronavirus pandemic, threatens re-igniting the long-standing trade war between the two countries.

Spencer said to expect less favorable economic news from the two countries. Tensions between them will be extremely sensitive this year, especially with the upcoming U.S. Presidential elections in November. President Trump will center his reelection pitch on his ability to be tougher on China than his opponent Joe Biden.

“So the rhetoric between China and the U.S. has already gotten worrying. And I think it can only get worse through this summer, “he said.

Spencer added that there is no prospect for a phase two deal that President Trump planned to establish before the elections. Since the possibility of the phase one deal falling apart in the next few months is very high.

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