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U.S.-China Uncertainty Drags On Investment, Growth: PNC Economist

Despite a much-touted “Phase 1” trade agreement this month, uncertainty in overall relations between Washington and Beijing is a drag on U.S. business investment and economic growth, a senior American economist said.

“There are still a lot of thorny issues between the United States and China that need to be resolved, particularly over things like intellectual property and opening up China to imports of services from the United States,” said Gus Faucher, senior macroeconomist and vice president at PNC Financial Services Group. “I think the Trump administration miscalculated. I think they thought their leverage over China is larger than it actually is.”

“Until we have more clarity there– and I don’t expect to see more clarity for a year or so — that is going to be a drag on U.S. economic growth,” Faucher believes.

Faucher discussed U.S.-China business as part of a broader presentation about the “National Economic Outlook” at a “Vermont Economic Conference” organized by the Vermont Chamber of Commerce in South Burlington that attracted about 300 business and government leaders on Thursday.

Faucher believes the U.S. leverage has declined in part because China’s exports to the U.S. account for less than 4% of its economy compared with 11% about a decade and a half ago. That U.S. share declined through 2018 as China’s exports to other markets and domestic consumer spending rose, he said.

“The United States leverage over China is substantially lower than it was a decade and a half ago,” he said. “Don’t forget that President Trump faces an election year in November; President Xi does not face an election — ever, and there is strong nationalist sentiment in China for taking a hard line with the United States,” Faucher continued. “So although I’m encouraged by the Phase 1 deal that we got last week, there are still a lot of big issues to resolve with China,” as well as “a lot of uncertainties surrounding the long-term relationship between the United States and China,” he said. “I would not be at all surprised if you see the tensions go up and down and up and down in the near term.”

“All of that creates uncertainty, and all of that is a drag on business investment decisions in the United States” and American economic growth, Faucher said. Business investment in the U.S. will also be under pressure because of production problems at Boeing, he said.

Nevertheless, Faucher predicted that the U.S. will avoid recession this year, and, after a dip in growth in 2020, sustain economic growth in the ballpark of 2% annually in part on the overall health of U.S. consumers.

Other speakers at South Burlington event included Vermont Chamber of Commerce President Betsy Bishop, Vermont Department of Labor Economic and Labor Chief Mathew Bacewicz, Federal Reserve Bank of Boston Assistant Vice President Marybeth Mattingly, former Vermont Governor Jim Douglas, former Canada Deputy Prime Minister Jean Charest, Vermont Tax Commissioner Craig Bolio, and TD Wealth Senior Vice President Raymond Radigan.

Prior to joining PNC, Faucher was a director and senior economist at Moody’s Analytics. Previously, he worked for six years at the U.S. Treasury Department, and taught at the University of Illinois at Urbana-Champaign.
Source: Forbes

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