China economy slowdown amid escalating trade war spells problems for world economic growth

China’s economy slowed down in the June quarter, expanding by 6.7 per cent, down from the previous quarter’s 6.8 per cent, its slowest pace since 2016, amid the growing tariff dispute with Washington.

Figures on investment growth and industrial output slowed in June.

The US last week escalated the tariff battle listing another $200 billion worth of Chinese goods to be hit with tariffs. This followed the US slapping tariffs on $34 billion of Chinese goods on 6 July, and China retaliating, saying the US had launched the “largest trade war in economic history”.

China’s economic activity is expected to decline further with global demand for Chinese exports weakening and tighter lending weighing on construction and investment, major contributors to China’s growth.

In a research note, Oxford Economics warned that “intensifying trade conflict with the US” would weigh on China’s growth in the second half of 2018.

The problem for the global economy is that China generates as much as a third of global growth, so any slowdown in China would put the brakes on global growth.

“If the US and China do not resume talks in the next two months or so, the conflict will escalate further, with major economic implications for themselves and the global economy,” Louis Kuijs, head of Asia Economics at Oxford Economics in Hong Kong, wrote in a note for clients.

Other economists concurred.

“We have not seen the worst yet,” Iris Pang, Greater China economist at ING Bank NV in Hong Kong told Bloomberg. “For the rest of the world it begins with a bilateral trade war between the U.S. and China but it would not end with a bilateral impact. Global supply chains, shipping companies, foreign investment hurdles from the US government at the same time as China pledges to welcome more foreign investment will change global business flows.”



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