A $60 billion US stimulus windfall is heading China’s way
David Ni is expecting a great year for his Chinese car-wheels business, thanks to the $1.9 trillion boost President Joe Biden just gave to the US economy.
Americans flush with $1,400 stimulus checks mean “demand in the US is rampant,” said Ni, whose Jiangsu Siborui Import and Export Co., headquartered in Nanjing, buys high-end aluminum alloy car wheels from Chinese producers and sells them to retailers in the US.
“Citizens get cash and they jump into shopping,” he said, predicting his sales will surge by more than 30% this year.
The US fiscal boost will bring huge spillovers for the global economy, especially China, the world’s biggest exporter. About $360bn of the stimulus package will be spent on imports, according to Allianz SE, with Chinese exports likely to increase by $60 billion over 2021-2022 as Americans snap up computers, household equipment and clothing.
But it also means rising prices for Chinese-made goods that have already started to tick up and a possible worsening in tensions with the U.S. over trade imbalances.
While US neighbors Canada and Mexico will see the biggest impact relative to the size of their economies, the stimulus package could increase China’s gross domestic product by 0.5% over the next year, according to the Organisation for Economic Co-operation and Development. Bloomberg Economics estimates that a 1% boost to US demand adds about 0.08% to China’s GDP.
That means the economy could expand 9% this year, according to UBS AG, which upgraded its forecast for China’s export growth in 2021 to 16%, compared with 3.6% last year. The export boost would give businesses room to spend on expanding capacity, allowing China to maintain its high levels of investment even as state spending on infrastructure slows, according to chief China economist Wang Tao. The government’s official GDP growth target for this year is “above 6%.”
There’s already concerns in the US that the stimulus and expected economic rebound this year could lead to faster inflation there, with Treasury yields surging in recent weeks. An increase in imports from China combined with the recent rebound in Chinese factory prices mean American consumers could soon be paying more for their goods too.
Ni said Chinese wheel producers are raising prices because of shipping costs near record highs and the recent rise in metal costs.
“Southeast Asia manufacturing has not yet recovered -- the orders will fall on Chinese exporters,” he said. “Consumer prices in the U.S. are unavoidably rising.”
The trade boom could also mean more effort from the US to curb imports in the longer term in order to ease the trade imbalance with China, a source of tension in Washington for years.
“Given America’s history, it is easy to envisage that protectionist sentiment, including on currencies, could be exacerbated,” Mark Sobel, a former career Treasury official, wrote in a commentary last week. “Even if the widening current account deficit is largely made in the U.S., history shows that won’t stop American finger pointing.”
Stronger export growth will also slow Beijing’s efforts to rebalance the economy to make it more reliant on domestic consumption and less on industrial production. The government has been saying it wants to do this for several years, but little progress has been made and the process was actually set back last year when consumer spending collapsed.
“I don’t feel that the relatively weak domestic consumption is bothering the policy makers that much. It’s similar to last year,” said Chen Long, an economist at Beijing-based consultancy Plenum. “I don’t think there’s discussion about re-balancing at all.”