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China's growth vulnerability to US tariffs exposed by the IMF

Saturday, August 10th 2019 - 07:32 UTC
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 James Daniel, IMF's mission chief to China, said on Friday the 10 per cent tariffs Trump announced could slow the nation's growth by 0.3 points in the coming year. James Daniel, IMF's mission chief to China, said on Friday the 10 per cent tariffs Trump announced could slow the nation's growth by 0.3 points in the coming year.

China's economy already is slowing amid the trade conflict with the United States, but if Washington were to ramp up tariffs even further it could cut Chinese growth sharply, the IMF warned on Friday.

The International Monetary Fund already had trimmed its growth forecast for China to 6.2% this year, assuming no new tariffs are imposed.

But US duties of 25% on Chinese goods not yet facing tariffs would slow the economy in the following year, the IMF said in a report.

The annual review of China's economy - known as the Article IV report - was completed before President Donald Trump announced plans to impose 10 per cent punitive tariffs on US$300 billion in imports.

That new tranche means that all products from China will be subject to duties starting Sep 1 in the intensifying trade war.

The Washington-based global crisis lender once again called for a quick resolution to the trade conflict between the world's economic superpowers, warning of “significant negative spillovers globally.”

For China, the report said, ”A further escalation of the trade tensions, for example the US raising tariffs to 25 per cent on remaining imports from (China), could reduce growth by around 0.8 percentage points over the following 12 months.“

James Daniel, the IMF's mission chief to China, said on Friday the 10 per cent tariffs Trump announced could slow the nation's growth by 0.3 points in the coming year.

While he declined to comment on the current status of the conflict, Daniel told reporters the fund's recommendations to China in the event conditions deteriorate is to provide more fiscal stimulus and allow its currency to move freely to ”help absorb the tariff shock.“

The situation ”requires some kind of response,“ Daniel said on a conference call. But China's currency ”should remain flexible and market-determined,“ which would mean ”less intervention.“

However, when Beijing allowed its currency to weaken Monday following the tariff announcement, Trump angrily accused China of manipulating its currency to gain a trade advantage over US companies.

China's central bank then intervened to stabilize the exchange rate to prevent it from falling further.

Relations have soured further in the past week after Trump announced the new round of punitive tariffs, despite a truce agreed with President Xi Jinping in May, and Beijing responded by halting all purchases of US agricultural goods.

The US Treasury then declared China a currency manipulator, after the Yuan dropped below seven to the dollar - a psychological threshold.

While Trump has crowed over the slowing Chinese economy, Daniel stressed that the gradual decline in growth is part of a process ”to successfully switch from high-speed to high-quality growth.“

The report projects growth will moderate to six per cent in 2020 and to 5.5 per cent by 2024.

But there is ”an awful lot China can and should be doing“ as part of that process, he said, including continuing reforms to open up more sectors of the economy, reducing impediments to trade and boosting consumption.

It is ”very much in China's interest,” Daniel said.

Categories: Economy, Politics, International.

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