15 Jul

Trump Takes Credit for China’s GDP Growth Weakness

WRITTEN BY Anuradha Garg

In a series of tweets on Monday, Trump today weighed in on China’s GDP growth, which came in at a 27-year low. Trump also attributed weaker Chinese growth to US tariffs.

One tweet read, “China’s 2nd Quarter growth is the slowest it has been in more than 27 years. The United States Tariffs are having a major effect on companies wanting to leave China for non-tariffed countries. Thousands of companies are leaving. This is why China wants to make a deal…”

China’s GDP growth is at its lowest in 27 years

China reported its second-quarter GDP on Monday. It came in at 6.2% year-over-year, the country’s weakest reading in 27 years. During the first quarter, China’s GDP had grown 6.4% year-over-year.

The ongoing US-China trade war is one cause of this weaker growth. Market participants expect more stimulus measures from China’s central bank to support the country’s flagging growth.

Since the US-China trade talks broke down in May, sentiment has been flagging on both sides. As the New York Times reported, Mao Shengyong, a spokesperson for China’s National Bureau of Statistics said, “Economic conditions are still severe both at home and abroad, the global economic growth is slowing down, the external instabilities and uncertainties are increasing.” However, he downplayed the impact of the trade war, saying China’s economy increasingly relies on consumption.

Companies leaving China due to tariffs

The Nikkei Asia Review said that global consumer tech companies are looking to move out of China amid the trade war. The Nikkei article reported that HP (HPQ), Dell (DEL), Microsoft (MSFT), and Amazon (AMZN) are thinking of moving significant production out of China to escape from the tariffs, uncertainties, and rising costs in China. Learn more in Alexa, Tech Companies Are Leaving China: Where Will They Go?

In another tweet on Monday, Trump added that China “wishes it had not broken the original deal in the first place. In the meantime, we are receiving Billions of Dollars in Tariffs from China, with possibly much more to come. These Tariffs are paid for by China devaluing & pumping, not by the U.S. taxpayer!”

The veracity of these tweets, however, remains questionable. While Trump has maintained that Chinese firms are paying these US tariffs, the costs are mostly borne by US companies. These companies, in turn, pass the costs on to consumers to maintain margins.

As CNBC reported, the IMF has said that US tariffs on Chinese goods have “been borne almost entirely” by US importers.

The trade war’s impact on the US and China

China’s slowdown isn’t doing any favors for US companies. Earlier this year, Apple (AAPL) and NVIDIA (NVDA) warned that China’s slowdown is hurting their earnings. Meanwhile, Micron (MU), and Intel (INTC) derive a significant part of their revenues from China. Apple, NVIDIA, and Micron are up 2.7%, 2.1%, and 15.3%, respectively, this month. Intel is down 1.8%.

Still, the trade war affects China more. The iShares FTSE/Xinhua China 25 Index (FXI) has increased 7.8% year-to-date. In contrast, the S& P 500 (SPY) is up 20.3%.

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