Goshen News, Goshen, IN

Business

May 7, 2014

Slower Chinese economy to pinch U.S.

WASHINGTON — After watching China narrow the U.S. lead as the world’s largest economy, Americans might be tempted to cheer signs that the Chinese economy might be stumbling.

Any schadenfreude would be short-sighted.

In an interconnected global economy, bad news for one economic superpower is typically bad news for another — even a fierce rival.

“It hurts,” says Mark Zandi, chief economist at Moody’s Analytics. “China is the second-largest economy on the planet. If growth slows there, it affects everybody.”

Zandi estimates that each 1 percentage point drop in China’s economic growth causes as much damage to the U.S. economy as a $20-a-barrel increase in oil prices: It shaves 0.2 percentage point off annual U.S. growth.

That isn’t catastrophic. But to regain its full health nearly five years after the Great Recession officially ended, the U.S. economy needs whatever help it can get.

A sharp slowdown in China also threatens the 28-member European Union, which outweighs even the United States if measured as a single economy. China is the EU’s second-largest export market behind the United States.

A stream of economic news from China has been rattling financial markets. Chinese manufacturing slowed in April for a fourth straight month. A Chinese lending bubble, driven by overbuilding, is stirring alarm. China’s growth in the January-March quarter slowed to 7.4 percent compared with a year earlier. It was its slowest quarterly growth since the 2008-2009 global crisis.

For most economies, 7.4 percent growth would qualify as explosive. The U.S. economy hasn’t grown as fast as 7 percent since 1984. But for China, a still-developing economy that clocked double-digit growth through much of the 2000s, the latest figures qualify as a slump.

And Americans and Chinese are linked ever more tightly economically.

They buy each other’s products, invest in each other’s markets, visit each other’s tourist attractions. U.S.-China trade in goods last year totaled $562 billion. China is the United States’ second-biggest trading partner and the No. 1 source of U.S. imports, according to the Congressional Research Service.

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