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As the old adage goes, “trade wars have no winners.”
STR/AFP via Getty Images
Topline: As the Sino-American trade war dragged on last year, it weighed on both the U.S. and Chinese economies (as noted in this CNBC analysis): GDP growth has slowed, manufacturing declined and trade volumes decreased, while the bright spots that remain include solid consumer spending, steady jobs and rallying stock markets.
Since the trade war started in July 2018, GDP growth has slowed in both the U.S. and China, down to 2.1% and 6%, respectively, as of the latest quarterly statistics.
If tariff pressures continue, or if U.S. and Chinese domestic growth slows further in 2020, “that would likely cause the slowdown in the global economy to become more protracted… it would also trigger a stock market sell-off,” according to Nicholas Sargen, economic consultant at Fort Washington Investment Advisors.
Amid slowing global trade activity due to tariff pressures, exports and imports in both countries decreased in the first ten months of 2019, compared to the year before, data from the U.S. Census Bureau and National Bureau of Statistics of China show. The overall U.S. trade deficit hasn’t changed much since 2018, while China’s rose slightly in 2019.
The trade war, combined with slowing global economic growth, has also taken a toll on the American and Chinese manufacturing sectors: China’s official manufacturing index remained in contraction territory for most of last year—before recovering somewhat—while the U.S. has seen factory activity contract since August.
A bright spot for both countries’ economies, however, has been solid consumer spending: Retail sales have held steady, boosted by robust American and Chinese job markets.
Currency movements, on the other hand, have gone in opposite directions: Boosted by a domestic economy that’s holding steady, the U.S. dollar rose 0.3% in 2019, while in China, authorities have largely been letting the yuan depreciate, according to CNBC’s analysis.
Tangent: The yuan’s depreciation has been a major source of contention for U.S. President Donald Trump, who has often criticized China for currency manipulation.
Big numbers: In terms of the U.S. and Chinese financial markets, both the S&P 500 index and Shanghai SE Composite index rose by more than 20% last year. The two indices saw their best yearly gains since 2013 and 2014, respectively. Diffusing trade tensions helped send stocks on Wall Street to record highs in previous months, while the inclusion of Chinese stocks within major global indices boosted China’s stock market, according to CNBC.
Key background: After months of on-and-off again negotiations, the U.S. and China finally agreed upon a phase one trade deal in October, before both sides confirmed terms of the deal in December. As it stands, President Trump announced that the phase one agreement will officially be signed on January 15, as both sides work to finalize the legal and translation process. The de-escalation of trade tensions between the world’s two biggest economies was also a boost for global economic growth, which has slowed over the last year and a half as tariffs weighed heavily on international trade.
Further reading: Phase One U.S., China Trade Deal To Be Signed This Week: Report
U.S., China Reach Initial Trade Deal, But Is It As ‘Amazing’ As Trump Claims?
Wall Street Hits Record Highs After Reports U.S. Signs Trade Deal With China
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