The Current State of U.S.-China Relations
Key Insights
Due to COVID-19, supply chains are changing to make contingency plans outside of China. Specifically, firms want to have less China risk, so diversifying supply chains is a major focus. There is a possibility of legislative action in the next couple months to rip supply chains out of China and move them to Mexico or South Asia.
GDP in Asia should grow slightly in 2020 and rebound in 2021, while the rest of the world may not grow at all. The U.S. may experience moderate recovery in 2021, with an overall drop of 2% GDP between 2020 and 2021. China will outperform the U.S. by over 6 percentage points in GDP growth over the next two years, and its GDP will become about 75% of U.S. GDP, making it a more important global player.
The U.S. used to account for 20-25% of Chinese exports and 6% of imports, but now represents 17% of exports and only 5% of imports. Chinese exports over the last 3 months are about equal to what they were in the slump of 2014, showing that exports did not grow despite substantial economic growth.
Both U.S. presidential candidates are going to make an aggressive push on China. If Trump is failing in the polls or if Biden calls him out for being weak on China, there is potential for seismic policy shifts on China. According to Mills, Biden does not appear to have a clear China policy, and he is waiting for Trump to put his “foot in his mouth.” With so many problems between the U.S. and China in the current economic and political climate, there needs to be a flexible relationship over the next year in order to avoid aggravating the problem.
With the 100th anniversary of the communist party coming next year, China will abstain from any negative press until the 2022 Olympics. The most far reaching issue not on the public’s radar is in Xin Jong, the site for Disney’s new movie filmed in China. There appears to be a genocide going on within the city, and other countries may boycott the 2022 Olympics in Beijing because of this.
Michael Drury, Chief Economist at McVean Trading and Leland Mills, Founder of China Beige Book, which provides proprietary Chinese forecasting to C-level executives, provide key insights on political and economic relations between the United States and China. They also offer guidance on how the COVID-19 pandemic and 2020 U.S. Presidential election impact these relations. To support the GIC and learn about more of their events, contact us at info@marionstreetcapital.com.
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