China appears able to bear the cost of the Trump administration’s tariffs on imports, with little evidence of an economic slowdown, according to a survey by the International Monetary Fund.
The IMF found that the U.S. tariffs so far on imports from China would shave only about 0.2 percent from growth, forecasting GDP growth of 6.2 percent in 2019. The strength of China’s economy and the government’s ability to respond to the tariffs may call into question President Donald Trump’s assertion that China would be hurt by the levies.
Kenneth Kang, a deputy director in the Fund’s Asia and Pacific department, said China’s efforts to provide economic stimulus to offset the impact of 25 percent tariffs have been successful. He said that if tariffs remain at current levels, no further stimulus would be necessary to keep growth in the targeted range.
Kang spoke at a press conference in Beijing in Wednesday. A transcript was made available Thursday.
“If trade tensions escalate, for example, if U.S. were to impose additional tariffs, it’s true that growth could be significantly affected,” Kang said. “And in this situation some temporary stimulus could be appropriate.”
The administration imposed tariffs of 25 percent on some $50 billion of China-origin imports in mid-2018, and it increased the pressure with a 10 percent tariff on an additional $200 billion in imports in September of last year. The U.S. raised the 10 percent to 25 percent in mid-May in response to alleged backtracking by China in negotiations. Trump has threatened tariffs of up to 25 percent on an additional $300 billion in imports.
The U.S. reported Thursday that the deficit with China increased $2.1 billion in April, to $29.4 billion. Exports decreased $1.8 billion, to $8.5 billion, and imports increased $300 million, to $37.9 billion.
Kang said that stimulus via government spending would be the fund’s preferred first response, but he also said monetary policy could play a role. Kang also discounted any attempt by China to manipulate the exchange rate.
“In other words, the renminbi is not overvalued nor undervalued,” Kang said. “At the same time, we welcome the greater exchange rate flexibility that we’ve seen in recent years. A more flexible, and a more market-determined exchange rate will benefit China, and allow the exchange rate to serve as a shock absorber.”
Trump, in various statements on Twitter, has predicted that the tariffs will hurt the Chinese economy.
“I say openly to President Xi and all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries,” he tweeted on May 13.
Kang, responding to reporter’s questions, acknowledged that eventually continuing trade friction could affect some companies. But he said that these shifts and others also could benefit other countries as the Chinese economy continues to evolve from “high-speed growth” to “high quality growth.”
Kang repeated the IMF view on the risks of trade conflict. “As we mentioned many times before, everybody loses in a protracted trade war. If trade is threatened and trade is damaged, growth will suffer,” he said.
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