China, America, and The Trade Wars; What Impact To Look Out For?
Impact of China’s Growth on Global Finance
According to the nominal GDP facts, China is currently the second-largest economy of the world with $14.3 trillion. Experts believe that China is going to surpass the USA in a maximum of 15 years.
The IMF survey depicts that the US-China trade war is not going to have any effect on China's economy, which is projected to grow in 2019 by 6.3%. The question to ask is what will be the effect of China's uprise on global finance.
Being four times more populated than the USA, China has a larger workforce and greater production power. With more exports than imports, the trade surplus of China is $26.21 billion which indicates economic health.
It can be clearly seen that china has a greater role to play in the global market. Now, let's have a look at how the country achieved all this power and how is it going to change the future of the global economy.
Historical Overview of the Chinese Economy
The speed with which China has risen out of the reach of other century-old countries in economic growth is quite interesting. Till 40 years after its establishment, China remained in isolation from the global economy and foreign trade.
In 1979, the country introduced free-market reforms. Recently, almost a year back, China has shifted its focus from agriculture to industrialization. This step has significant importance in reshaping the country' economy.
The government introduced the Chinese Foreign Equity Joint Ventures Law to welcome foreign capital and developed Special Economic Zones for interacting with foreign investors. This step yielded mass-exportation resulting in huge economic boost. This spurred a review of tax laws, adjudication, business environment, and banking processes.
China's economy is, therefore, expected to grow by 9% in the next decade as it reached 10.4% by 2010. This also helped the country to earn WTO membership and it recognized itself as a huge exporter in the world.
The 2007-2008 recession impacted the country and the exports fell by 18%, causing millions of workers to lose their job. But China responded immediately to the situation and invested millions of dollars in various sectors to decrease the unemployment rate and stabilize its economy.
China and the Global Economy
The total international trade value of China is $4.1 trillion which is 12.4% of global trade and that makes the country the largest trader in the world.
It imports goods for almost $1.84 trillion and exports for $2.26 trillion, depicting that rather than China relying on the world, the world relies on China. So, it is undeniable that if the Chinese economy strengthens, it will automatically affect the global economy in a positive manner. While a negative impact on Chinese economy will cause an economic crisis all over the world.
The affordable labor, rapid social development, and economic growth are the factors that increase the stake of foreign investors in China. Many foreign companies have chosen to invest in the country and establish subsidiaries here. The FDI in China has increased to an all-time high limit of $451 HML in April 2019.
US-China Trade War
The trade war between the two biggest economies of the world puts the rest of the world at alert because it’s going to have an overarching effect.
Recently, Trump has made it clear that this trade war is targeted to hamper the economy of China and benefit the USA by buying less Chinese products to increase its domestic industry.
This step is going to affect the global markets and will also dislocate the diplomatic relations between both countries.
The trade war will not only affect China's relations with the USA but also with the allies of the USA like South Korea, Japan, and Germany. The result of this trade war- the global stock market has started showing collapse signs. Asia, Japan, Europe, all are facing performance decline. The trade war is predicted to cost a huge amount of almost $600 billion to the global economy.
There seems to be no chance of this trade war coming to an end in the near future. If that happens, then the global economy is going to face a lingering crisis.
The Way Forward
The Belt and Road Initiative is going to uplift the global economy and China’s power in it as well as the economy of countries that are involved in the project to enhance regional connectivity.
The project involves investment in 152 countries and international organizations of the world and also developing the infrastructure of these countries that it is investing in.
The trade war has slowed down the Chinese economy and put pressure on its government to enlarge its market for investors and consumers. Keeping in view the historic record of China in addressing the economic crisis, it is expected to pursue economic diversification, and create new opportunities in the global market.