Trade war ‘biggest’ risk for US, China in 2019

Trade war ‘biggest’ risk for US, China in 2019

The ongoing trade war between China and the US may be the biggest external risk for the Chinese economy in 2019, but it could also help the country further deepen reform and opening-up, analysts said on Tuesday,  Global Times reports in its article Trade war ‘biggest’ risk for US, China in 2019: think tank.

Although the dispute might crimp economic growth in both countries, it could have a much larger impact on China than the US, according to the Chinese Economy Blue Book 2019, released by the Chinese Academy of Social Sciences (CASS) on Monday.

The CASS studied three possible scenarios involving different rates of US tariffs on different amounts of Chinese goods. In all of those scenarios, both China and the US would experience major declines in exports and employment.

For example, in the worst-case scenario, under which the two countries impose a 25 percent tariff on all each other's exports, China's exports could drop as much as 9.7 percentage points, while US exports would fall 10.9 percentage points, according to the CASS, a government-affiliated think-tank. 

In terms of employment, if the two countries keep the current tariffs on each other's goods, China would lose 8.6 million jobs while the US would lose 1.25 million jobs, the report showed. China added 13.51 million urban jobs in 2017, while the US created 2 million jobs in the same year, according to US and Chinese official data.

The biggest external impact on the Chinese economy next year will be the trade war, said Lou Feng, director of the economic modeling team at the Institute of Quantitative and Technical Economics under the CASS.

Lou urged both China and the US to strengthen consultation and avoid further escalation of the trade war. Following a trade truce reached earlier this month, Chinese and US officials have been in close contact and they are scheduled to meet for talks in Washington early next year. But some researchers from China's Ministry of Commerce acknowledged that there is possibility those trade talks could fail.

Deepening reform

Given this uncertainty, China must prepare for the worst-case  scenario by sticking to its path for deepening economic reform and opening-up, analysts said. "The trade war was intended to contain China's growth, and it has indeed caused some difficulties for us; on the other hand, it will help us deepen reforms," Yang Yiyong, director of the Institute for Social Development of the National Development and Reform Commission, said at the release of the blue book on Monday.

Lou also called for deeper reforms to boost China's manufacturing transformation and upgrading. "We should promote innovation as well as a new round of reform and opening-up," he said. Many Chinese analysts have argued that the trade war could prompt China to carry out new reform and opening-up measures, which is a good thing, in theory. But others cautioned that China shouldn't be driven off its intended course under pressure.

Tian Yun, director of the China Society of Macroeconomics Research Center, told the Global Times that China will stick to the path of reform.  "China's reforms will deepen, whether there's trade friction or not. I believe the US has no intentions to help China in this regard," Tian noted.

Cao Heping, a professor of economics at Peking University, said that just because the trade war may have a bigger impact on the Chinese economy than the US doesn't mean China will surrender to the US. "China won't yield to trade friction when it involves our fundamental interests. But to make agreements and cooperation happen, China can tolerate some losses," he told the Global Times. Cao said it's not necessarily the case that China will lose in the trade conflict, because it is involved in so many industrial sectors and has a high rate of substitution in the export market, compared with that of the US.

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