James David Spellman

Opinion | China’s receding economic tide will ground all boats, including the US’

Aside from the domino effect of a Chinese economic slowdown, the US has several deeply vulnerable sectors, from tech and drugs to agriculture and rare earths. A belief that US has little exposure to China’s problems is misguided

Reading Time:4 minutes

Why you can trust SCMP

James David Spellman

Published: 5:30am, 19 Sep 2023

As China’s exports tumble for the fourth straight month and the yuan hits a 16-year low, will the country’s slowdown leave the US economy unscathed? Or will the contraction reverberate worldwide, a contagion heralding a lengthy recession?

Current thinking downplays China’s economic threats to the United States. Nobel Prize winner Paul Krugman, for example, asserts that “America has remarkably little financial or trade exposure to China’s problems”. Treasury Secretary Janet Yellen concurs.

This view stresses that US exports to China hardly equal 1 per cent of US gross domestic product. So far this year, Mexico and Canada have beaten China to become America’s biggest trading partners – trade is shifting away from China as supply sources diversify. Direct investment by Americans in mainland China and Hong Kong totals about US$215 billion with portfolio investment adding another US$300 billion – a sliver of US stock markets, valued at over US$46 trillion. Of the US$23 trillion in US banks assets, exposure to China amounts to roughly US$20 billion.

To determine how a slowdown in China could harm the US economy, the bank Wells Fargo simulated a “hard landing” where China’s economy grows annually by just 4.5 per cent over the next three years, having averaged 8.95 per cent since 1989. “Despite the severity of our simulated Chinese growth shock, the effects on real GDP growth in the United States, the Eurozone and Japan are rather modest,” it said. For the US economy, the impact was just 0.1 per cent off its inflation-adjusted growth in 2024 and 0.2 per cent in 2025.

A strong case? To the contrary, no.

Just consider how Apple stocks recently lost nearly US$200 billion of market value in two days after reports that China will ban iPhone use in government agencies and state-owned companies. The US$3 trillion company depends on China, its third largest market, for 18 per cent of its revenue.