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Opinion | China’s economic decline will compel all ships, including those from the US, to remain idle


Sep 18, 2023

With China experiencing a decline in exports for the fourth consecutive month and the yuan reaching a 16-year low, concerns arise about the potential impact of China’s economic slowdown on the US economy. However, current thinking downplays the threat, with experts arguing that the US has limited financial and trade exposure to China. Treasury Secretary Janet Yellen has pointed out that US exports to China only make up around 1% of the country’s GDP.

Trade data supports this claim, as Mexico and Canada have surpassed China to become the United States’ largest trading partners this year. Trade diversification has led to a decrease in reliance on China as a supply source. However, it is important to take into account the interdependencies between the two economies, particularly in sectors with significant growth opportunities and implications for national security and sustainable energy development.

For example, the information technology sector, particularly semiconductor-related companies, have significant exposure to China. A slowdown in China can greatly impact these companies, with some US semiconductor makers relying on China for up to 70% of their sales. The recent example of Apple losing market capitalization due to reports of China banning the use of iPhones in government agencies and state-owned enterprises highlights the vulnerability of companies to China’s actions.

The pharmaceutical sector is also vulnerable, as the US heavily relies on China for the import of medicines and active pharmaceutical ingredients (APIs). China’s restrictions on the export of critical metals for semiconductor manufacturing, as well as its near-monopoly position in processing rare earths, further highlight the vulnerability of the US to disruptions in the Chinese supply chain.

Moreover, the risk sentiment channel plays a significant role in the transmission of China’s economic woes to the US economy. During recessions or sudden changes in economic trends, risk appetite weakens, leading to a downward spiral of falling stock prices, reduced growth, and decreased demand. The concerns about China’s economic problems can have spill-over effects on the US economy, impacting stock prices, the value of the dollar, and GDP.

It is crucial to recognize the extent to which China is integrated into the global economy and its potential to impact other global economic phenomena. Synchronicity, where changes in one country’s economy can rapidly affect the rest of the world, plays a significant role. This has been evident in the coordinated actions of central banks in response to economic challenges. The International Monetary Fund expects China to contribute 34.9% of global growth this year, highlighting its importance to the global economy.

Contrary to downplaying the potential risks, it is important to recognize that when China experiences economic challenges, it can have significant implications for the world economy. The old adage that “when China sneezes, the world catches a cold” remains true. Therefore, it is essential for policymakers and businesses to consider and prepare for the potential impact of China’s economic slowdown on the US economy.

By Editor

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