Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21
Why Tether USDT, Stable Scam Coins Could COLLAPSE the Crypto Markets - Black Swan 2021 - 6th Jun 21
Stock Market: 4 Tips for Investing in Gold - 6th Jun 21
Apple (AAPL) Summer Correction Stock Trend Analysis - 5th Jun 21
Stock Market Sentiment Speaks: I 'Believe' We Rally Into A June Swoon - 5th Jun 21
Stock Market Russell 2000 After Reaching A Trend Channel High Flags Out - 5th Jun 21
Money Is Cheap, Own Gold - 5th Jun 21
Bitcoin and Ravencoin Cryptos CRASH Bear Market Buying Levels Price Targets - 4th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

If China Falls, so Will America

Economics / China US Conflict Jan 24, 2019 - 07:02 AM GMT

By: John_Mauldin

Economics

The US and China are the world’s largest and second-largest economies.

They are also entwined in so many ways that it’s hard to tell where one ends and the other starts. Some call it “Chimerica.” which is an apt description.

But that’s not bad.

International trade promotes peace and prosperity for all. It’s not always smooth, evenly distributed, or free of issues. But such is the nature of great affairs.


In the long run, China’s growth has made the world better. Billions, and I mean literally billions, of people globally have been lifted out of poverty.

All that said, the US and China are also separate nations with separate interests. We compete as well as cooperate. So, conflicts inevitably arise.

They need to be resolved, but not in the way Trump has proposed.

He fails to grasp one thing. Impairing an economy so tied to our own weakens the US as well.

China Is on Shaky Ground

Trump demands China that respect intellectual property rights and compete fairly. Just as we let Chinese companies operate here.

It’s a legit demand.

But China can’t just flip a switch. Entire regions and industries are optimized for a model we want to change.

However necessary, the change will take time. It will cause problems if it’s not managed well.

Worse, China’s economy is already on shaky ground.

Its unique blend of communism, capitalism, and sheer size, has produced enviable growth. I think growth will keep up, but a slowdown is inevitable.

China is still subject to the law of large numbers. It can’t maintain 6% or higher GDP growth indefinitely.

We’ve seen hints in data for some time now. And they’re starting to add up.

For one, the gap between US and China GDP growth has been shrinking in the last decade.



Source: Financial Times

Then automotive sales are rolling over.

That’s partly due to the rise of ride-sharing services. But it also suggests the growth of Chinese middle-class prosperity has slowed.

It’s also a result of “front-loading” auto sales for the previous few years. When you pull future demand forward, the future eventually demands repayment.

This Isn’t Just a Chinese Problem

US and European automakers export vehicles to China and own factories in China.

China’s slowdown is one reason General Motors closed several plants and laid off thousands of workers last year.

Then you probably heard Apple’s revenue warning. It blamed weakening conditions in China.

Here’s the uncomfortable truth.

A great deal of world growth is directly tied to Chinese growth. And not just absolute current growth, but expected future growth.

Businesses have built 6% Chinese growth into their models. And compounded forever. It’s baked into the forecasts and expectations. Shareholders are happy.

And when that growth stutters, we get surprises. Apple is just the first of many.

The US Is More Dependent on China Than You think

Yes, the US has a trade deficit with China.

But that doesn’t mean China buys nothing from us. They indeed do. And part of our economy depends heavily on Chinese customers.

Here’s a chart that shows China’s importance to top US semiconductor companies:



Five major public companies got a third or more of their 2017 sales from China. A little change could wipe out all or most of their profits.

Lots of smaller US companies also count on China for components that have no US alternatives. Rising costs, whether due to tariffs or anything else, hit their bottom lines, too.

US Growth That Wasn’t

A significant part of US growth last year came from a rise in US inventories. For some arcane reason, building inventories, not actual sales, counts for GDP.

Many businesses that depend on Chinese materials built inventory ahead of the feared tariff at the end of 2018.

Those inventories are going to be sold in 2019 and often not replaced. So, a large part of the slowing economy in 2019 will simply be a reduction of inventories.

The apparent robust growth of the last half of 2018 was simply pulling production forward from 2019.

China has its own problems, like enormous debt and increasingly strapped consumers. But remember, a weak China is going to hurt the US. As well as Europe and especially Germany.

Get one of the world’s most widely read investment newsletters… free

Sharp macroeconomic analysis, big market calls, and shrewd predictions are all in a week’s work for visionary thinker and acclaimed financial expert John Mauldin. Since 2001, investors have turned to his Thoughts from the Frontline to be informed about what’s really going on in the economy. Join hundreds of thousands of readers, and get it free in your inbox every week.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in