China’s Growth Slows To 30-Year Low, What Does It Mean For The Global Economy?
China’s economic growth slowed to 6% in the third quarter, the lowest in thirty years and “below” analysts’ expectations of 6.1%. But, quite frankly, if anyone is seriously disappointed by the 6% figure because they had been expecting 6.1%, they should probably consult a doctor. Things are actually far more positive than the alarming headlines would lead us to believe.
To give some perspective, Asia’s exports so far this year are still 5.9% higher than in 2017, according to Haver Analytics. China’s economic slowdown in the last few years is due to the government’s initiative to shift to a service-driven economy from an industry-led one—not because of the trade war. China’s exports of $145.6 billion in the first seven months of 2019 were virtually unchanged from the $146 billion in the same period last year. Furthermore, China’s trade surplus with the U.S. so far this year has actually risen, according to data firm CEIC.
Emerging Asia has dense and sophisticated global value chains, which have shown no sign of disruption from the trade war. What the Trump administration doesn’t grasp is that global value chains have de-nationalized and redefined competitive advantages. Today, products are made through global value chains, which are set to become even more complex and sophisticated as services are beginning to globalize (Richard Baldwin, 2019. The Globotics Upheaval. Weidenfeld & Nicolson). Companies, regardless of their national origins, compete by sourcing and combining inputs from across the world.
Tariffs are now technologically obsolete. In a world of global value chains, a trade war is unwinnable—and it only creates deep uncertainty for the entire global economy. In a world run on global value chains, it is impossible to direct precisely the damaging effects of a trade war to a specific adversary. Instead, the outcome is deep uncertainty with unanticipated consequences that affect the entire global economy. No one is untouched. Only the resilient and the adaptive can weather the storm, such as emerging Asia.
Emerging Asia’s economic strength today is over two decades in the making. Fiscal discipline has improved and macroeconomic policies are more market-driven. Economic integration has deepened and expanded as well, as evidenced by rising investment from China, Japan and South Korea into South and Southeast Asia.
In the decade since the global financial crisis, emerging Asia’s real GDP in U.S. dollar terms grew by 105%, according to Aletheia Capital, versus 12% in the developed economies. It has some of the world’s lowest foreign debt levels relative to GDP (Malaysia being an outlier), and some of the healthiest and most stable balances of payment.
Much can still go wrong if the global economy becomes more turbulent. But unlike the U.S. Federal Reserve, emerging Asia’s central banks have more room for monetary easing. And unlike the U.S. government, emerging Asia has the fiscal power to support growth if needed.