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Economic Insights

How might the economies of the United States and China be affected by the current conflict?

The importance of trade to China's economy is very similar to that of the United States—and less than half of what it is for export-dependent economies such as South Korea.

 

Trade Exposure: How Three Global Economies Stack Up
Total trade as a share of gross domestic product, March 31, 1999­–June 30, 2019

 

Source: Bloomberg, U.S. Bureau of Economic Analysis. Data as of September 3, 2019.  Chart depicts a moving average of total exports and imports of goods and services for the respective economies.
The historical data are for illustrative purposes only, do not represent the performance of any specific portfolio managed by Lord Abbett or any particular investment, and are not intended to predict or depict future results. Investors may experience different results.
Past performance is not a reliable indicator or guarantee of future results.

 

Exports of goods to the United States have actually fallen from 7.4% of China’s gross domestic product (GDP) in 2006 to only 3.4% in 2019. Punitive tariffs on all exports to the United States—25% across the board—likely would lower GDP in China by less than 1% over two to three years, in our estimation.

 

Exports to the U.S. Account for Less Than 5% of China’s GDP
Goods exports as a percentage of China’s gross domestic product, December 31, 1999–June 30, 2019

Source: Bloomberg, U.S. Bureau of Economic Analysis. Data as of September 3, 2019. Chart depicts a moving average of total and U.S.-specific goods exports by China. 
The historical data are for illustrative purposes only, do not represent the performance of any specific portfolio managed by Lord Abbett or any particular investment, and are not intended to predict or depict future results. Investors may experience different results.
Past performance is not a reliable indicator or guarantee of future results.

 

Imports from China represent about 2.5% of U.S. GDP, so a full pass-through of a 25% tariff on all Chinese goods imported into the United States could potentially increase consumer prices by 0.6%-0.7%, based  on our estimates.

 

Hefty Tariffs Could Have a Significant Impact on U.S. Inflation
Trade from China as a percentage of U.S. gross domestic product, by category, December 31, 2003–March 31, 2019 (latest available)

Source: Bloomberg, U.S. Bureau of Economic Analysis, Lord Abbett.
The historical data are for illustrative purposes only, do not represent the performance of any specific portfolio managed by Lord Abbett or any particular investment, and are not intended to predict or depict future results. Investors may experience different results.
Past performance is not a reliable indicator or guarantee of future results.

 

To sum up, the direct economic impact of U.S.-China trade friction is likely to be limited for both countries in the short term. However, should the trade war drag on, the resultant uncertainty could create headwinds for companies doing business in both nations. The lack of clarity about the potential duration and scope of this conflict is ultimately what could weigh on global economic growth.

“The trade war between the United States and China is generating a lot of uncertainty, and it carries political and economic risk for leaders of both nations. Ultimately, we believe it's in the interests of both sides to resolve this conflict.”

--Giulio Martini, Lord Abbett Director of Strategic Asset Allocation

PDF: Tracking the Trade-War Impact

videoHow might the economies of the United States and China be affected by the current conflict?

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